Measuring the role of trade in maintaining employment stability: evidence from Indonesia's experience

Abstract

The importance of employment stability is a noble goal of national economic development. This is based on the link between employment opportunities in achieving the level of welfare and prosperity of society. This has become an important discussion in recent times, but the potential risks originating from the external sector as a consequence of an open economy is an important unanswered urgency in building more sustainable employment stability. By using the Vector Error Correction Model (VECM) and the Johanssen Cointegration Test, this research aims to analyze the influence of international trade, which in this research is proxied by the export and import variables with employment stability, which in this research is proxied by the unemployment rate variable with annual data starting from 1991 – 2020 in Indonesia. The research results show that in the long term, export performance is proven to increase the unemployment rate, while import performance has the effect of reducing the unemployment rate in Indonesia. We propose policy recommendations regarding policies for developing labor-intensive industries in national leading sectors and commodities as an effort to increase employment stability through increasing export performance. Apart from that, increasing imports of technological goods needs to be increased in order to create output that is more efficient and has high competitiveness in increasing people's purchasing power