WHY LABOR FORCE PARTICIPATION RATE RISES? NEW EMPIRICAL EVIDENCE FROM INDONESIA

The labor force participation rate in Indonesia has increased during the period from 2008 to 2017. This paper attempt to investigate the issue, three independent variables encompassing, gross regional domestic product per capita at current prices, male life expectancy, and the number of dependents were considered in this paper, to understand if the selected variables have an impact on the increase in the labor force participation rate in Indonesia. The regional panel data obtained from the Indonesian central bureau of statistics was extracted from the period of 2010 to 2015. The panel data model and the Hausman test were applied to test the hypotheses. The findings indicate that the fixed effect model is suitable for data analysis. The results reveal that gross regional domestic product per capita at current prices positively affect the labor force participation rate while male life expectancy was noted to have a negative effect on the labor force participation rate. Theoretically, a lower income and a higher life expectancy would encourage more people to enter the labor market, but the Indonesian data showed the different and interesting results.