Intersectoral labor migration and agriculture in the United States and Japan

In spite of important differences in their agricultural sectors, the past century has seen a significant decline in the number of people employed in agriculture in the U.S. and Japan. Economic models of intersectoral labor migration focus on expected return differentials as the primary cause of migration from one sector to another. Empirical applications typically assume that migration occurs as soon as the return differential exceeds Marshallian migration costs, but recent work has focused on embedding the migration decision in a real options framework. Structural and institutional elements can also affect the speed at which the share of agricultural labor declines. We consider the factors influencing intersectoral labor migration in the U.S. and Japan using aggregate migration equations and several definitions of agricultural labor and return differentials. We show that real options, although relevant at the household level, have limited implications for sector‐level empirical models. Our estimates are inconclusive regarding the importance of the Marshallian trigger in the migration decision, with heterogeneity across the two countries and labor definitions. We argue that this heterogeneity in the wage and migration relationship is driven by differences in the structures of the agricultural sectors.