The Mystery of the Impact of SMEs on Unemployment, Poverty, and Job Participation in Indonesia

Abstract

The lack of studies on SMEs and economic growth and their influence on unemployment and community work participation in Indonesia highlights the SMEs' Economic Importance and their impact on unemployment and community work participation. With diverse correlations in the results of past studies, the demand for study on SME economic growth, unemployment, and labor participation is growing. This research took 21 years, from 2000 to 2020, by modeling "autoregressive vectors" to understand the causal relationship between variables. The World Bank, Kementerian Koperasi dan Usaha Kecil dan Menengah (KemenkopUKM), and the Badan Pusat Statistik (BPS) provided secondary data for this study. We use the variables of the number of SMEs in Indonesia, economic growth, poverty alleviation, and unemployment reduction in Indonesia. We found that the increasing number of SMEs will reduce the unemployment rate, but when the unemployment rate decreases, SMEs will be lower, this happens because when unemployment is high, people in Indonesia open SMEs only as an alternative to lost jobs, but when the unemployment rate decreases SME will be abandoned. The increase in SME is also followed by an increase in poverty, as evidenced by the relationship between SME and economic growth, but this study also has a limitation, namely SME represents "the number of SME's, not SME turnover, so the suggestion in future research is to include SME turnover to link it with the poverty alleviation indicator.