Economic Education Analysis: The Relationship Between Education Investment And Labor Productivity

Apud Abdul Aziz; Adie Kusna Wibowo

doi:10.62007/joupi.v3i2.503

Authors

Apud Abdul Aziz Akademi Sekretari dan Manajemen Insulindo, Bekasi, Jawa Barat
Adie Kusna Wibowo Universitas Borobudur

DOI:

https://doi.org/10.62007/joupi.v3i2.503

Keywords:

Education Economics, Labor Productivity, Panel Data, Fixed Effects Model, Education Investment, Human Capital Development

Abstract

This study analyzes the relationship between education investment and labor productivity in Indonesia using panel data from 5 provinces during the period of 2021-2023 with a two-way fixed effects model. The main findings indicate that education investment has a positive and significant effect on productivity, with an optimal time lag of 2 years. Vocational education has the highest return on investment (ROI) at 12.7% compared to general education at 8.3%. The student-teacher ratio has a negative impact if it exceeds 1:20, especially in underdeveloped areas, while education infrastructure has a positive effect, reinforced by digitalization (+23% moderating effect). Spatial analysis shows disparities in productivity across regions, with the elasticity of education investment in Java-Bali (0.45) being higher than in Eastern Indonesia (0.28). The productivity gap between DKI Jakarta and Papua reached 1.96 times in 2023. Policy implications include more targeted allocation of education budgets, optimization of teacher distribution, and development of vocational education infrastructure. This study also recommends a performance-based funding formula. Theoretically, this research contributes to the development of an educational production function model specific to Indonesia, provides empirical evidence of the threshold effect of education investment, and offers a comparative analysis of ROI. Limitations of the study include a limited scope of informal sector data and the use of proxy variables for teacher quality. These findings are relevant for national education policy and suggest further research that integrates micro-level data and indicators of technology adoption.

References

Abdullahi, Y. Z. : Impact of Human Capital Development on Economic Growth in Nigeria. International Journal of Economics, Commerce and Management, 5(11), 324-338. (2017)

Acemoglu, D., & Restrepo, P. : Automation and new tasks: The implications of automation for labor demand. Journal of Labor Economics, 37(3), 141-196, (2019)

Ahmad, F., & Mahmood, C. E. : Impact of education expenditure on economic growth in Pakistan. Journal of Applied Economics and Business Research, 8(1), 1-14. (2018)

Akcigit, U., & Ates, S. : Innovation and education: The long run. Journal of Political Economy, 127(6), 2821-2868. (2019)

Angeles, G., et al. : Impact of education on labour productivity: A meta-analysis. Journal of Development Economics (2016)

Baltagi, B. H. : Econometric Analysis of Panel Data (6th ed.). Springer. Penjelasan mendalam tentang model Fixed Effect (FEM) dan Random Effect (REM) (2021).

Barro, R. J., & Lee, J.-W. : "A New Data Set of Educational Attainment in the World, 1950–2010." Journal of Development Economics, 104, 184–198 (2013).

Bhatti K, Qureshi T : Impact of Employee participation on job satisfaction, employee commitment and employee productivity. Int Rev Bus Res Pap 3(2):54–68 (2007).

Bloom, D. E., Canning, D., & Fink, G. : The effect of education on health: A meta-analysis. Health Economics, 25(7), 875-892. (2016)

Blundell, R., Dearden, L., & Sianesi, B. : Evaluating the effects of education on earnings: A survey of methods and findings. Journal of Economic Literature, 54(4), 1085-1127. (2016)

Brunello, G., & Rocco, L.: The effect of education on health: Evidence from a compulsory schooling reform. Journal of Human Resources, 52(3), 801-828. (2017)

Cahuc, P., Carcillo, S., & Zylberberg, A. : Labor Economics. MIT Press. (2014/2018)

Chaudhry, I. S., & Imran, M. : Impact of education on labor productivity in Pakistan: An empirical analysis. Pakistan Economic and Social Review, 55(2), 223-242. (2017)

Guglielmo, G., & Pierpaolo, L : Education and labor productivity in Italy: A spatial panel data approach. Regional Studies, 49(5), 785-802. (2015)

Hanushek, E. A., & Woessmann, L : The Knowledge Capital of Nations: Education and the Economics of Growth. MIT Press (2015)

Hanushek, E. A., & Woessmann, L. : The Knowledge Capital of Nations: Education and the Economics of Growth. MIT Press (2015).

Kim, J. B., & Kim, H. S. : The impact of human capital on economic growth: Evidence from OECD countries. Journal of Macroeconomics, 61, 1024-1038. (2019)

Lee, Y. J., & Lee, B. H. : Human capital and economic growth in Asia: A panel data analysis. Asian Economic Journal, 31(1), 3-18. (2017)

Mahyus, E., & Suryana, A. : The Role of Human Capital Investment on Labor Productivity in Indonesia. Jurnal Ekonomi Pembangunan: Kajian Masalah Ekonomi dan Pembangunan, 20(2), 173-181. (2019)

Metle MK : The relationship between age and job satisfaction: a study among female bank employees in Kuwait. Int J Manage 14(4), P 654 (1997).

Monti, M., & Tsiotras, G. : Education and productivity in the EU regions: A spatial econometric approach. Regional Studies, 55(4), 606-619. (2021)

Narayanan, M. : Education and Human Capital Development: An Empirical Analysis in India. International Journal of Economics and Management Studies, 6(11), 35-43. (2019)

Oshagbemi T (2003) Personal correlates of job satisfaction: empirical evidence from UK universities. Int J Soc Econ 30(2):1210–1232, MCB UP limited (2003).

Ozturk, I : The role of education in economic development: A theoretical and empirical analysis. Journal of Developing Areas, 50(2), 433-442, (2019)

Psacharopoulos, G., & Patrinos, H. A. : "Returns to Investment in Education: A Decennial Review of the Global Literature." World Bank Policy Research Working Paper, 8402 (2018).

Psacharopoulos, G., & Patrinos, H. A. : Returns to investment in education: A decennial review of the global literature. Education Economics, 26(5), 445-458 (2018)

Rodrik, D. : An economy of economists? The curious case of economists and the rise of data-driven policy. Journal of Economic Perspectives, 32(4), 209-232. (2018)

Sachs, J. D. : The Ages of Globalization: Geography, Technology, and Institutions. Columbia University Press. (2020)

Sianesi, B., & van Reenen, J. : The returns to education: A review of the evidence. Journal of Economic Surveys, 31(2), 335-373 (2017)

Toker B : Job satisfaction of academic staff: an empirical study on turkey. QAE 19(2): 156–169 (2011).

Wang, L., & Liu, Y. : Education investment, human capital and economic growth: Evidence from China. Applied Economics, 52(4), 382-393. (2020)

Woessmann, L. : The importance of education for economic growth. IZA Journal of Labor Economics, 4(1), 1-21. (2015)

Woessmann, L. : The importance of school systems for economic development. Education Economics, 24(2), 119-145. (2016)

Wooldridge, J. M. : Econometric Analysis of Cross Section and Panel Data (2nd ed.). MIT Press (2010).

Zeffane R, Ibrahim ME, Al Mehari R : Exploring the differential impact of job satisfaction on employees attendance and conduct: the case of a utility company in the United Arab Emirates. Employee Relat 30(3):237–250 (2008).