South Asian Journal of Social Studies and Economics

The unemployment rate is influenced by various macroeconomic factors, including interest rates, which affect investment and job creation. Besides, renewable energy consumption, foreign direct investment (FDI), and gross domestic product (GDP) growth play significant roles in driving economic activity and absorbing labor. Based on these premises, this study focuses on macroeconomic determinants—namely renewable energy consumption, interest rates, FDI, and GDP per capita—in relation to the unemployment rate. The case study focuses on Indonesia. Time series data from 1991 to 2023 were collected from secondary sources, namely BPS-Statistics Indonesia. The data were then tabulated using the Autoregressive Distributed Lag (ARDL) approach. The study found that renewable energy consumption has a significant but inconsistent short-term effect on unemployment, suggesting a time lag in job creation. Interest rates exhibit a positive and significant impact on unemployment in both the short and long term, as higher rates restrict access to financing. Statistically, FDI also shows a positive relationship with unemployment across both time horizons, likely due to the concentration of investment in technology-intensive and automated sectors with low labor absorption capacity. Meanwhile, GDP per capita has a negative and significant effect on unemployment. This finding reveals that inclusive economic growth contributes to reducing unemployment rates, consistent with Okun's law. The study's findings underscore the urgency of implementing targeted interest rate policies, strategically managing foreign investment, promoting inclusive economic growth initiatives, and ensuring an equitable energy transition driven by skills development and data-driven labor market planning. Explicitly, policy recommendations are directed toward investment in the renewable energy sector and setting low interest rates for labor-intensive industries to create new jobs and reduce unemployment. Too, FDI policy should focus on sectors that absorb a large workforce, while ensuring inclusive GDP per capita growth through increased productivity in labor-intensive sectors that are integrated into the local economy.