Spatial Gaps in Minimum Wages and Job Search of Young Workers

This study examines the extent to which spatial gaps in real minimum wages affect the location choice in job search of new high school graduates in Japan. We exploit the exogenous shock related to the 2007 amendment of the Minimum Wage Act which expanded variations in real minimum wage between urban and rural prefectures. We propose Bartik-like instruments for differential exposure to these shocks to perform a causal inference of the impact of spatial gaps in real minimum wages on the location choice in job search of unskilled young workers. Our estimation results show that the real minimum wage gaps partially motivate job search outside resident prefectures. Our counterfactual evaluation for the uniform minimum wage across prefectures shows that approximately 10-25% of new high school graduates in rural prefectures seek jobs outside their resident prefectures even under the uniform minimum wage setting. This result suggests that the simple correlation overestimates the impact of minimum wage on outmigration because other factors than wages such as urban amenity may explain spatial behavior in job search.