Elasticity of Formal and Informal Labor on Regional Economic Growth: The Moderating Role of Fiscal Independence in the Era of Gig Economy in Indonesia
Keywords:
Gig Economy Labor Elasticity Formal and Informal Labor Fiscal Independence SYS-GMMAbstract
The emergence of gig economy has transformed the pattern of informal employment in developing countries, including Indonesia. Ride-hailing marketplaces, delivery service apps and on-demand work platforms have grown the informal labor sector into an increasingly crucial component of regional economic life. It then becomes useful to explore how informal gig as well as the traditional labor force are economically productive, in a context of regional tax autonomy. This study: its objectives are to analyze elasticities of both formal and informal labor on GRDP and to explore the moderating role of fiscal independence. In a System GMM for dynamic panel data, the findings suggest that informal labor is more elastic to GRDP than formal labor. This responsiveness can be attributed to the elasticity of informal employment, low entry barriers and its close association with local consumption areas. Moreover, upon being moderated by fiscal independence, it was found that fiscally independent regions showed higher elasticity of informal labor. This reflects that fiscally independent regions rely on the traditional and gig economy informal activities micro enterprises, services, platform work, more than those with comprising local demand and fiscal capacity. These results generalize the theory of dual labor market and Lewis’s surplus labor model by adding the gig economy as a contemporary version of informal sector. Policy implications emphasize that regional fiscal strategies should not only aim to strengthen local revenue capacity but also actively support and regulate the gig economy and informal sector as inclusive drivers of regional economic growth.
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