What Drives Inequality in Sumatra? Evidence from Provincial Panel Data, 2015–2024

Abstract

This research analyzes the relationship between income inequality, measured by the Gini ratio, and key socioeconomic variables such as regional minimum wages, poverty levels, human development, and unemployment across ten provinces in Sumatra from 2015 to 2024. Utilizing annual panel data sourced from BPS and applying a panel regression approach, the Random Effects model was selected as the most appropriate based on specification tests. The findings reveal that higher minimum wages and improved human development outcomes are associated with reduced income inequality, while greater poverty levels are linked to a widening income gap. In contrast, unemployment does not exhibit a statistically significant effect on the Gini ratio. A 1 percent increase in the minimum wage is associated with a 0.00052 reduction in the Gini ratio (≈ 0.052 Gini points) on the 0–1 scale, and a 10 percent increase with ≈ 0.005 (≈ 0.5 Gini points). A one-point improvement in the Human Development Index (HDI) is associated with a 0.002 reduction in the Gini ratio (≈ 0.2 Gini points). These insights support policy measures that enforce fair wage standards, strengthen human capital, and reduce poverty to foster more inclusive growth across Sumatra.