A Contribution to the Empirics of Labour and Development Economics

This dissertation contains four essays of which the first two essays analyse the regional and individual persistence of unemployment, while the third essay explores the appropriate design for the amount of grant for cash transfer program and the fourth essay presents an alternative international poverty line compared to the official line of the World Bank. The first three essays are relating to the Indonesia and the last essay is for case of all developing countries. The first essay investigates the tests of hysteresis versus persistence hypotheses of provincial unemployment rates in Indonesia by applying time-series and panel unit root analyses during 1990 to 2012. The results show that on the one side, most of the individual provincial tests using linear trends and the CBS definition cannot reject the hysteresis hypothesis. On the other side, there are increasing rejections of the hysteresis if the tests use quadratic trends and the old definition (U1). The main results from the tests by categorical gaps, such as gender gaps suggest rejecting the hysteresis hypothesis as well. When examining the results using panel data, the majority of the tests reject the hysteresis both using linear and quadratic trends. Lastly, the local economic policies that can be used to promote investment and managing the growth of real regional minimum wages are more favourable than increasing local government expenditure in order reduce the unemployment rates and the adjustments to their normal levels in local labour markets. The second essay presents a dynamic probit analysis of individual unemployment incidence using a panel survey on the National Socio-Economy (Susenas), 2008-2010. It compares a variety of dynamic random effects estimators, particularly focusing on the Heckman (1981) and Wooldridge (2005) approaches. The main results show a strong evidence of persistence or state dependence of individual unemployment in Indonesia. This finding is consistent with the theory of scar unemployment. The third essay investigates who currently gets the cash transfer programs in Indonesia, especially BLT and PKH programs and proposes better alternative options for designing the amount of grant compared to the fixed universal grant applied by the Indonesian government recently. The results show that there are a significant number of the non-poor or non-intended households receiving the programs. Based on the simulations, the alternative options for the amount of grant are: (1) making the grant equal to the income deficit of the poor household plus the expected inflation, and (2) giving the grant equal to the 75th percentile of the income deficits of the households plus the expected inflation in respective provinces. These two alternative options reduce the provincial poverty rates significantly compared to the fixed universal grant. In the last essay, we show that the estimated relationship between mean consumption and national poverty lines to generate absolute international poverty line at $1.25 a day by Ravallion, Chen, and Sangraula (2009) is statistically problematic. Our alternative statistical estimation generates a point estimate of an absolute international poverty line that is substantially higher than $1.25 a day, but with very large standard errors attached to the estimates.