The Effect of Economic Digitalization and Startup Investment on Informal Sector Employment Absorption in Five Metropolitan Cities of Indonesia (Jakarta, Surabaya, Bandung, Medan, and Makassar) 2020–2024: An Islamic Economic Perspective

Abstract

The development of digital technology has significantly transformed economic and employment structures in Indonesia, particularly through economic digitalization and the growth of startup ecosystems. This study aims to analyze the effect of economic digitalization and startup investment on informal sector employment absorption in five Indonesian metropolitan cities during 2020–2024. A quantitative approach was applied using secondary data from the Central Statistics Agency (BPS) and the Financial Services Authority (OJK), analyzed with panel data regression in EViews 13. Model selection was conducted using the Chow Test, Hausman Test, and Lagrange Multiplier Test. The results show that economic digitalization and startup investment have a positive and significant impact on informal sector labor absorption, both individually and simultaneously. Digital technology expansion has increased business efficiency, created new job opportunities, and broadened market access for MSMEs. From an Islamic economic perspective, these findings reflect the principles of maslahah, social justice ('adl), and economic inclusivity, emphasizing equitable distribution of economic benefits.