Determinants of Economic Functioning among Informal Worker Households Using the District Minimum Wage as a Benchmark: Empirical Evidence from Gunungkidul

Abstract

Measuring welfare in the informal sector can be biased when it relies on fluctuating nominal income rather than actual household expenditure. This study applies the Capability Approach to examine how resources shape the economic functioning of informal worker households in Gunungkidul, Indonesia, using real household consumption expenditure as a proxy for functioning. The study contributes by shifting the unit of analysis to households and introducing the District Minimum Wage (UMK) as a conceptual benchmark. Using March 2025 National Socioeconomic Survey (Susenas) data covering 464 informal worker households, the study applies binary logistic regression. The model shows good discriminatory capacity, with an AUC of 0.788 and a Nagelkerke R-squared of 0.321. Male-headed households have substantially higher odds of achieving expenditure above the UMK. Financial inclusion shows contrasting effects: account ownership is negatively associated with the outcome, while credit, digital money, and combined financial services are positively associated, with combined services showing the largest odds ratio. Business-oriented internet use has a stronger positive association than general internet access. Higher education and longer working hours are positively associated with the probability of expenditure above the UMK, whereas age has a negative association. The findings highlight the importance of human capital, productive financial inclusion, business-oriented digitalization, and demographic characteristics in expanding the economic capabilities of informal worker households.