Investigating Keynesian Theory in Reducing Unemployment and Poverty in Indonesia

Investigating Keynesian Theory in Reducing Unemployment and Poverty in Indonesia

This research aims to investigate the application of Keynes’s theory in Indonesia, particularly in solving unemployment and poverty problems through government spending, economic growth, and human resource capacity. The basic concepts of the Keynesian theory were used as a method, through which government spending was harnessed toward economic growth in reducing unemployment and poverty rate. The analytical materials used were panel data for the 2017–2021 period in Central Java, Indonesia. The analytical methodology used was a multiple regression experimental design in selecting the best model according to Keynes’s theory, especially for overcoming formidable problems. The main results showed that large Government spending program is ineffective in encouraging pro-growth, pro-job, pro-poor, and pro-equity development policy strategies. The causes of this failure include the violation of Keynes’ assumptions about rationality and the low quality of education investment, which do not encourage productive and innovative entrepreneurship, as well as self-employment opportunities. As a result, government spending, including subsidies and direct financial assistance, used to implement the macroeconomic monetary, unstructured, and fiscal policy system is insufficient to significantly reduce the enormous difficulties. The main research results confirm that human capital capacity is the key to mitigating and reducing unemployment and poverty.