Regional Economic Disparity: Real wages and happiness

This paper presents some empirical facts on regional economic disparity in Japan from an equity perspective. The main findings are as follows: 1) interprefectural differences explain less than 10% of wage disparity amongst individuals, with the majority of disparity being attributable to variances within prefectures; 2) according to the Oaxaca-Blinder decomposition analysis, from 70% to 80% of the disparities of nominal wages between Kanto and Tohoku or Kanto and Kyushu is explained by observable worker characteristics, workplace characteristics, and price level differences. Among the positive relationship between city population and wages, about half is explained by the observable worker and workplace characteristics, and from one third to one half of the remaining half is attributable to price differences; 3) prefecture minimum wages adjusted by the cost of living index indicate that the real minimum wage is the lowest in Tokyo; 4) Although household income is an important determinant of individual happiness, the effect of income on the differences in regional happiness is almost nonexistent. These findings suggest that, from the viewpoint of equity in well-being of people, distributional policy should focus on individuals or households.