Abstract
This study aims to analyze the simultaneous relationship between economic growth and employment opportunity in 33 districts/cities of North Sumatera Province, Indonesia during the 2018-2022 period. Using panel data with 165 observations, this research employs Two-Stage Least Squares (TSLS) with Fixed Effect model to address endogeneity issues. The identification strategy utilizes industrial output and industrial labor as instruments for economic growth, while labor force participation rate and open unemployment rate serve as instruments for employment opportunity. The findings reveal a significant simultaneous relationship between economic growth and employment opportunity. Economic growth positively and significantly affects employment opportunity with a coefficient of 0.107 (p<0.05), while employment opportunity positively and significantly affects economic growth with a coefficient of 0.142 (p<0.05). Industrial output shows a significant positive effect on economic growth, while labor force participation rate positively affects employment opportunity and open unemployment rate negatively affects employment opportunity. The Chow and Hausman tests confirm that Fixed Effect is the most appropriate model compared to Pooled OLS and Random Effect. Instrument validity tests indicate that all instruments are valid and strong (F-statistic > 10). These findings imply that economic policies in North Sumatera should integrate the real sector and labor market simultaneously, emphasizing the development of labor-intensive industries to create mutually reinforcing cycles between economic growth and employment expansion.
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