Digitalization’s Impact on Micro-Firm Performance and Worker Welfare in Sumatra

Objective: This study aims to analyze digitalization’s impact on micro-firm performance and workers’ welfare in Sumatra’s manufacturing sector.Methods: Employing a Propensity Score Matching (PSM) method, this research compares firms and workers who have adopted digital technologies with a control group.Findings: The findings reveal that digitalization significantly enhances firm income and provides workers with opportunities for higher earnings and extended working hours. However, the findings also show that digitalization did not enhance business stability during the COVID-19 pandemic. These insights highlight the transformative potential of digital technologies in driving economic growth and improving livelihoods while also uncovering critical gaps that must be addressed.Value: This study underscores the need for targeted policies to promote equitable digital adoption, expand digital infrastructure, and provide workforce training programs. By addressing these challenges, digitalization can bridge regional and socio-economic divides, ensuring its benefits reach smaller firms and marginalized workers. Policy implication: The findings contribute valuable insights for policymakers to develop strategies that strengthen the resilience, competitiveness, and inclusivity of Sumatra’s micro-manufacturing sector, fostering a more sustainable and equitable economic landscape in the region.