Exploring Local Labor Markets and Knowledge Spillover from a Spatial Perspective

Abstract

Relevance. Cities serve as vital hubs for socioeconomic activities, fostering convergence in local labor markets characterized by high productivity, premium wages, and knowledge spillover. Jakarta Metropolitan, as Indonesia's economic center, embodies these advantages, prompting the need for a spatial investigation of their regional association. Research Objective. This study examines the unique attributes of the labor market in the Jakarta Metropolitan Area. The analysis encompasses anomalies such as the impact of premium wages on local labor productivity and the influence of education levels, as a proxy for knowledge spillover, on urban labor productivity. Data and Methods. Utilizing microdata from Sakernas and macrodata from BPS for 2017-2019, this study offers a comprehensive analysis of the Jakarta Metropolitan Area. By synthesizing cross-level data, the intricate interplay between productivity, wages, and area size becomes evident, particularly the tendency for skilled individuals to gravitate toward larger urban centers. Employing spatial regression, the analysis takes into account local characteristics in regions. Results. Density and education have a positive correlation, while the number of holders of bachelor's degrees has a surprisingly negative impact on productivity. Notably, higher aggregate education levels enhance regional productivity throughout the Jakarta Metropolitan Area, except for highly educated individuals. The level of education influences the minimum wage in a region, driven by spatial disparities in the educational infrastructure and quality. The number of educated people also influences wages in and across regions, prompting migration to regions with higher salaries. Conclusions. By integrating microdata and macrodata and employing spatial regression techniques, this study shows the connection between education, productivity, and regional dynamics, particularly in the Jakarta Metropolitan Area. These findings challenge the assumption that possessing a high level of education guarantees higher productivity and remuneration, demonstrating the need for education reforms that align with labor market demands and bolster the economy.