Accounting for the Black-White Wealth Gap: A Nonparametric Approach
AbstractThis paper notes a potential problem in the method of Blinder and Oaxaca the most popular method in the literature for decomposing the mean difference between groups of a given variable into the portion attributable to differences in the distribution of some explanatory variables and differences in the conditional expectation functions. In its conventional application, the Blinder-Oaxaca method requires that a parametric assumption be made about the form of the conditional expectations function. We show that misspecification is likely to result in non-trivial errors in inference regarding the portion attributable to differences in the distribution of explanatory variables. A nonparametric alternative to the Blinder-Oaxaca method is proposed. Rather than specify an arbitrary functional form for the conditional expectations function, the method re-weights the empirical distribution of the outcome variable using weights that equalize the empirical distributions of the explanatory variable. Applying this method to the large black-white gap in net worth, we document a substantial difference in the estimated role of earnings differences between the two methods. Our estimates suggest that differences in earnings account for roughly two-thirds of the overall wealth gap.
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Bibliographic InfoArticle provided by American Statistical Association in its journal Journal of the American Statistical Association.
Volume (Year): 97 (2002)
Issue (Month): (September)
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Web page: http://www.amstat.org/publications/jasa/index.cfm?fuseaction=main
Other versions of this item:
- Robert Barsky & John Bound & Kerwin Charles & Joseph Lupton, 2001. "Accounting for the Black-White Wealth Gap: A Nonparametric Approach," NBER Working Papers 8466, National Bureau of Economic Research, Inc.
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
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