Can mandatory local-talent hiring policy reduce regional starting wage gap? Causal evidence from Korean graduates

Abstract

This study investigates the impact of Korea's mandatory local-talent hiring policy on regional starting wage disparities between non-Seoul Metropolitan Area (non-SMA) and Seoul-based university graduates. We use a difference-in-differences approach with micro-level data from Korean university graduates between 2010 and 2019. Our findings demonstrate that the policy has significantly reduced wage disparities by creating demand for skilled graduates from non-SMA universities, particularly benefiting those from top-ranking institutions. This demand has driven them to enhance their educational standards, leading to improved rankings and average GPAs. Our mechanism analysis confirms that these improvements are crucial in narrowing wage disparities. Interestingly, the treatment effects are stronger for humanities graduates compared to those in science and engineering. These findings offer valuable insights for policymakers seeking to promote balanced regional development in similar contexts.