The Effects of Social, Cultural, and Internet Access on Labor

Productivity

Raina Linda Sari

, Sirojuzilam Hasyim

, Inggrita Gusti Sari Nasution

Herfita Rizki Hasanah Gurning

Doctoral Program in Economics, Universitas Sumatera Utara, Jl. Prof. T.M Hanafiah, SH,

Kampus USU, Medan, Indonesia

Department of Development Economics, Universitas Sumatera Utara, Jl. Prof. T.M Hanafiah, SH,

Kampus USU, Medan, Indonesia

Keywords: Labor, Productivity, Internet Access, Crime.

Abstract: Human resource development is a part of the focus of Sustainable Development Goals (SDGs). Indonesia

relates most targets and indicators SDGs into Indonesia's development plans. Productivity is one of the

problems of human resource development that needs to be resolved by the government. This paper aims to

analyze the effects of education and health (social factors), crime (cultural factor), and internet access on

labor productivity in Indonesia. This paper uses panel data which is estimated using the Fixed Effect Model

(FEM). This research can prove that to increase Indonesian labor productivity can be achieved by improving

health, reducing crime, and increasing internet access. Meanwhile, this paper has not been able to prove that

education affects Indonesian labor productivity.

1 INTRODUCTION

Over the past three decades, Indonesia has benefited

tremendously in human development. With the value

of the human development index (HDI) of 0.68

Indonesia is in the group of countries with "medium

level in human development". From the data

obtained on the page of the Human Development

Report (2017), Indonesia as a whole is ranked 113th

out of 188 countries in 2015, where the ranking has

increased three times from 2010. Meanwhile, the

growth of HDI slowed in 2010 to 2015 (only

increased by 0.92 percent).

The problem of human resource development is

one of the focuses of the Sustainable Development

Goals (SDGs). One of the objectives of the 17 SDGs

is to promote sustained, inclusive and sustainable

economic growth, full and productive employment

and decent work for all.

(https://sdg2030indonesia.org/). Signing of

Presidential Regulation No. 59 of 2017 concerning

the Implementation of Achievement of the

Sustainable Development Goals is one form of

Indonesian government support for the SDGs. The

government connects most SDGs targets and

indicators into the national mid-term development

plan (RPJMN) and follows up on the strong

convergence between the SDGs and the president's

nine priority agenda "Nawa Cita".

Research on labor productivity has been widely

studied. However, some of the existing studies such

as. (Wahyuni, 2019); (Muslim et al, 2019);(Kumala

et al, 2018); (Ganau & Pose, 2018); (Naidah &

Hermansyah, 2017); (Grimes et al, 2012); (Fleisher

et al, 2011); (Hanson et al, 2010) and (Boles et al,

2004) have not conducted a thorough research on the

effects of social, cultural, and internet access

simultaneously on labor productivity. In addition,

this study examined all workers in the country of

Indonesia, while some previous studies only

examined labor in a company not a country.

This study aims to analyze the influence of

social, cultural, and internet access on labor

productivity. The social factors in question refer to

education and health, while the cultural factor refer

to the level of crime that occurred in Indonesia.

The findings of this study are expected to be able

to provide policy proposals to the government to

increase labor productivity in Indonesia.

Furthermore, increasing labor productivity is

Sari, R., Hasyim, S., Sari Nasution, I. and Hasanah Gurning, H.

The Effects of Social, Cultural, and Internet Access on Labor Productivity.

DOI: 10.5220/0009314205370541

In Proceedings of the 2nd Economics and Business International Conference (EBIC 2019) - Economics and Business in Industrial Revolution 4.0, pages 537-541

ISBN: 978-989-758-498-5

537

expected to improve people's welfare and then be

able to increase economic growth.

2 LITERATURE REVIEW

2.1 Human Resources

Capital accumulation, population growth, and

Technological Advancements are the main

components in the economic growth of every nation

(Todaro & Smith, 2004). Capital accumulation

includes investment and improving the quality of

human capital to increase output in the future.

Population growth as a factor of production and their

involvement in technological advancements will also

spur economic growth.

Therefore, the quality of human resources is an

important aspect that needs to be considered by the

government. Quality human resources will increase

productivity and will further increase economic

growth in a country.

2.2 Labor Productivity

Pindyck & Rubinfeld (2012) He describes the

production function as the output relationship (Q) of

its inputs, namely technology (A), capital (K), and

labor (L). As in the following function:

Q = f (A, K, L) (1)

The aggregate output is written as an endogenous

variable (Y) which can be valued by the amount of

money from the output value produced. If the labor

is moved to the left section as an output divider, the

labor productivity function is obtained as follows:

Y/L = f (K/L),A (2)

According to Greeberg in Mathis & Jackson

(2001) labor productivity is a comparison between

the totality of expenditure at a given time divided by

total input during that period. In other words,

productivity is defined as the ability of the

workforce to produce output.

2.2.1 Social Infrastructure and Labor

Productivity

The World Bank divides infrastructure into three

types. First, economic infrastructure which is the

physical infrastructure needed to support economic

activity. Second, social infrastructure, including

education, health, housing, and recreation. Third,

administrative infrastructure, including law

enforcement, administrative control, and

coordination.

This study will discuss social infrastructure that

refers to the second classification that is education

and health. Because both of these are forming

human capabilities as elements of human resources

to achieve economic growth..

Muslim et al (2019) make a research about

Analysis of Labor Productivity at Wall Façade

Works on POP Hotel Development Projects in

Pekanbaru. This study analyzes the influence of age,

work experience, level of education, suitability of

wages, health of workers, relations between workers,

managerial, and composition of working groups on

the level of labor productivity. The results of the

study show that education and wage levels can affect

productivity. In this study it can also be concluded

that the level of education has a dominant influence

on productivity with a beta value of 0.993.

The influence of this level of education on

productivity has also been examined by Naidah &

Hermansyah (2017) and Fleisher et al (2011). Their

research found that the higher the level of education

the higher the labor productivity.

In addition, Boles et al (2004) conducted

research on The Relationship Between Health Risks

and Work Productivity. This research was conducted

on 2264 employees of a large national employer

located in the Northeast. The results showed that

reduced productivity occurred in labors who had

diabetes and stress. In other words, health can affect

labor productivity. The lower the quality of health,

the lower the productivity of the labor.

In this study the level of education was proxied

by variable School Life Expectancy (HLS). While

the level of health is proxied by the variable life

expectancy (AHH).

2.2.2 Culture and Labor Productivity

Romer (2012) Romer stated that in addition to

human capital, there are other variables that can

affect worker productivity, namely geography and

culture. In this study the variable used to capture the

cultural effect on productivity is crime. In this case,

criminality is considered a variable that is thought to

reduce labor productivity. This makes sense,

because crime is related to comfort. A good work

environment will make workers more comfortable in

doing their jobs.

Crime affects people's quality of life.

Victimization of crime affects many things,

EBIC 2019 - Economics and Business International Conference 2019

538

including disruption of work functions and higher

unemployment rates (Hanson et al, 2010). Ganau &

Pose (2017) conduct research about industrial

clusters, organized crime, and productivity growth in

Italian SMEs. The results found that firms’

productivity growth affected by the negative direct

effects of organized crime. It also shows that the

negative effect on productivity growth from

organized crime is greater for small companies than

for large companies.

Thus, an increase in crime is thought to be able

to influence the productivity of individual workers.

This study uses a variable in the number of criminal

incidents reported to the Police Station to proxy

crime rates.

2.2.3 Internet Access and Labor

Productivity

According to Romer (2012) Developing countries

are currently poor because the population does not

have access that is used by developed countries to

create economic value. The technology gap is in the

form of physical object gaps (factories, highways,

and modern machines) and idea gaps (information

and processing of transactions and generating

motivation for labor).

Berg (2001) argued that in order to realize

economic growth, one that is needed is technological

advancement which has the role of finding new

production methods that are more productive and

efficient. The development of the Internet is one part

of technological progress.

A study of convergence and the influence of the

internet and capital on industrial labor productivity

in Indonesia has been carried out by Wahyuni

(2019). By using dynamic panel data from the

extended GMM approach, this study concludes that

capital increases and increased internet use can

increase industrial labor productivity and accelerate

convergence so that the time needed to reduce

industrial labor productivity gaps can be shortened..

Similar research has also been carried out by

Grimes et al (2012). This paper uses a large micro-

survey of firms to determine the impact that

broadband access has on firm productivity. The

results found that firm productivity boosted by 7-

10% due to broadband adoption. This results are

consistent across urban versus rural locations and

across high versus low knowledge intensive sectors.

The development of information technology,

especially the use of internet access, is thought to be

able to increase effectiveness and efficiency in a job

so as to increase labor productivity. This study uses

the percentage of residents who access the internet

to proxy the internet access variable.

3 METHOD

This study uses panel data, namely a combination of

cross-section and time series data. The data used are

data from 33 provinces in Indonesia with a period of

2013-2017. The variables used in this study are

productivity variables as dependent variables. While

the independent variable is School Life Expectancy

Life Expectancy Crime, and Internet Access.

The data used in this research is secondary data.

Data was obtained from the Central Statistics

Agency (BPS), World Bank, Human Development

Report (HDR), and the United Nations Development

Program (UNDP).

To analyze the influence of social, cultural, and

internet access on labor productivity, the method

used is panel data regression with the following

equation:

Y/L

= α+β

HLS

+ β

AHH

+ β

Crime

+ β

Aksin

+ɛ

(3)

Y / L is labor productivity, HLS is School Life

Expectancy, AHH is Life Expectancy, Crime is a

crime rate, and Aksin is Internet Access. Whereas i

is the province in Indonesia (33 provinces), and j is

the time studied (2013-2017).

Equation (3) is estimated by the Chow Test and

Hausman Test to get the appropriate model. Some of

the models to be chosen are Pooled Least Square

(Common Effect), Fixed Effect, or Random Effect.

It is estimated by using Eviews 9.

Pooled Least Square (Common Effect) estimates

panel data with ordinary OLS, there is no similar

character between province A in 2013 and province

A in 2014. In contrast, Fixed Effect Model has a

constant slope coefficient, whereas intercept is

different - different between times. Meanwhile, in

Random Effect Model, variations in values and

direction of relationships between subjects are

assumed to be random specified in residual form

(Gujarati, 2009).

4 RESULTS AND DISCUSSION

4.1 Choosing Appropriate Model

Choosing the appropriate model whether using

Pooled Least Square/PLS (Common Effect) or Fixed

The Effects of Social, Cultural, and Internet Access on Labor Productivity

539

Effect Model (FEM) is by using the Chow Test.

While choosing a model whether using the Fixed

Effect Model (FEM) or Random Effect Model

(REM) is by using the Hausman Test.

Table 1: Estimated Results of Chow Test and Hausman

Test.

Test Hypothesis P-Value Conclusion

Chow

Test

Ho: PLS

H1: FEM

0.000

Reject Ho

(Using FEM)

Hausman

Test

Ho: REM

H1: FEM

0.000

Reject Ho

(

Usin

FEM

)

From the estimation results as shown in table 1,

it can be concluded that the most appropriate model

to use is the Fixed Effect Model. This study assumes

that all variables (Productivity, HLS, AHH, Crime,

and Internet Access) change at a constant level over

time.

4.2 FEM Estimated Results

Table 2 is the specification effects of Fixed Effect

Model. R-squared value of 0.9676 means that

variations in the amount of labor productivity in

Indonesia can be explained by the variable School

Life Expectancy, Life Expectancy, crime, and

internet access by 96.76%, while the rest are

explained by other variables outside the model. In

this case, the model used in this study is appropriate.

Table 2: Effects Specification of Fixed Effect Model.

Specification Value

R-square

0.967674

Prob(F-statistic) 0.000000

Table 2 also shows that the probability of a F-

statistic value of 0.00 is smaller than alpha 5%,

rejecting Ho. This indicates that the School Life

Expectancy, Life Expectancy, crime and internet

access variables simultaneously affect labor

productivity in Indonesia.

Based on the estimation results as found in table

3, School Life Expectancy does not significantly

affect labor productivity in Indonesia. This indicates

that formal education alone is not enough to increase

labor productivity. However, it also requires an

increase in competence and skills through non-

formal education and training.

This study can prove that each variable, namely

the level of health, crime, and internet access has a

significant effect on labor productivity. The Life

Expectancy coefficient of 3.0077 indicates that for

every 1 year increase in life expectancy, labor

productivity in Indonesia will increase by Rp 3

billion, ceteris paribus.

Table 3: Productivity Fixed Effect Model

Dependent Variabel:

Productivity

Parameter Estimates

Coefficient SE

School Life Ex

ectanc

0.1856 1.0957

Life Ex

ectanc

3.0077* 1.7050

Crime -0.0001** 6.74E-05

Internet Access 0.0428*** 0.0144

Constant -200.27* 108.4331

Note:*Significant at 10%, **significant at 5%,

***significant at 1%

The Crime coefficient of -0.0001 indicates that

every increase in the number of incidents of crime

reported to the police by 1 event, labor productivity

in Indonesia will decrease by Rp 100,000 ceteris

paribus. Meanwhile, the internet access coefficient

of 0.0428 indicates that each 1% increase in the

population who access the internet, labor

productivity in Indonesia will increase by Rp 42.8

million, ceteris paribus.

5 CONCLUSIONS

This research is able to prove that each variable of

Life Expectancy, Crime, and Internet Access

significantly affects labor Productivity in Indonesia.

This research can prove that to increase Indonesian

labor productivity can be achieved by improving

health, reducing crime, and increasing internet

access. Meanwhile, this paper has not been able to

prove that education affects Indonesian labor

productivity.

Therefore, the government needs to create a

program that is able to encourage workers to

improve their competencies and skills, for example

through informal education and training assistance

programs in certain areas of expertise. In addition,

the government must also be able to run programs

that support sustainable health improvement. Equity

for the advancement of information technology also

needs to be considered so that all levels of society

are able to enjoy convenience due to technological

developments, especially internet access. Finally, the

government needs to improve the security and order

system to maintain the comfort of the community.

EBIC 2019 - Economics and Business International Conference 2019

540

ACKNOWLEDGEMENTS

The authors thank Allah SWT for the abundant

blessings. We thank all lecturers of Development

Economics Departement and people for supporting

us on this research. Finally, we gratefully

acknowledge that the present research is supported

by Ministry of Research and Technology and Higher

Education Republic of Indonesia. The support is

under the research grant TALENTA USU 2019.

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