Abdulrahman Taresh A.

Faculty of Economics and Business, 

Airlangga University, Indonesia

E-mail: abdt713@yahoo.com

ORCID 0000-0002-4217-7512

Analysis of the relationship between income inequality and social variables: Evidence from Indonesia

Dyah Wulan Sari

Faculty of Economics and Business,

Airlangga University, Indonesia

E-mail:

dyah-wulansari@feb.unair.ac.id

ORCID 0000-0003-3567-6513

Corresponding author

Rudi Purwono

Faculty of Economics and Business,

Airlangga University, Indonesia

E-mail: rudipurwono@feb.unair.ac.id

Abstract. This study tries to analyse the relationship between income inequality and social variables to provide additional empirical input on the related structural model. To achieve these objectives, this study uses the co-integration and long-run structural vector auto-regression (SVAR) for the panel data on 33 provinces in Indonesia over the 2005-2018 period. The study concludes that income inequality has a positive impact on population growth, unemployment, and poor health, whereas it also has a negative effect on education, human development, and urbanisation growth. Population growth, unemployment, poor health and urbanisation growth can increase income inequality, while education and human development index reduce income inequality. Furthermore, increased minimum wages can reduce income inequality, poor health, and increase education and per capita income. This study also found that per capita income has a long-term relationship with income inequality and population.

Received: March, 2020

1st Revision: July 2020

Accepted: February, 2021

DOI: 10.14254/2071-789X.2021/14-1/7

JEL Classification: A14, O15

Keywords: income inequality, social variables, panel co- integration, Indonesia