The Linkage Between Growth, Unemployment and Income Inequality on Poverty in Central of Java Province, 2004-2010

Abstract

The issues about the benefit of growth for the poor have been a priority in development policy. Poverty reduction can be achieved by income growth and distribution. The objectives of this study are to analize the relation between income percapita growth, unemployment and inequality on poverty reduction in Central of Java Province and to identify the determinant of those factors. Using Panel Two-Stage Least Square (2SLS), the results show that the income percapita growth is significantly influenced by the the rate of skilled labor growth, mean years schoolling of labor, the invesment, the quality of transportation and electrical infrastructure, and government spending on investment. The unemployment growth is positively influenced by the growth in skilled and unskilled labor supply and negatively by income percapita growth. The change in income inequality is positively influenced by income percapita growth, education inequality, price index and negatively affected by government spending on investment. The income percapita growth has the largest impact on poverty reduction, but its effectiveness reduced by the growth in unemployment and price index. In the period of 2004-2010, economic growth in Central of Java Province was not pro poor.