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Counterfactual decomposition of changes in wage distributions using quantile regression

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Author Info
José Mata
José A. F. Machado (Faculdade de Economia, Universidade Nova de Lisboa, Portugal)

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Abstract

We propose a method to decompose the changes in the wage distribution over a period of time in several factors contributing to those changes. The method is based on the estimation of marginal wage distributions consistent with a conditional distribution estimated by quantile regression as well as with any hypothesized distribution for the covariates. Comparing the marginal distributions implied by different distributions for the covariates, one is then able to perform counterfactual exercises. The proposed methodology enables the identification of the sources of the increased wage inequality observed in most countries. Specifically, it decomposes the changes in the wage distribution over a period of time into several factors contributing to those changes, namely by discriminating between changes in the characteristics of the working population and changes in the returns to these characteristics. We apply this methodology to Portuguese data for the period 1986-1995, and find that the observed increase in educational levels contributed decisively towards greater wage inequality. Copyright © 2005 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.788
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Publisher Info
Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 20 (2005)
Issue (Month): 4 ()
Pages: 445-465
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Handle: RePEc:jae:japmet:v:20:y:2005:i:4:p:445-465

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August. [Downloadable!] (restricted)
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  2. Mata, Jose & Machado, Jose A. F., 1996. "Firm start-up size: A conditional quantile approach," European Economic Review, Elsevier, vol. 40(6), pages 1305-1323, June. [Downloadable!] (restricted)
  3. Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January. [Downloadable!] (restricted)
  4. Mills, Jeffrey A & Zandvakili, Sourushe, 1997. "Statistical Inference via Bootstrapping for Measures of Inequality," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(2), pages 133-50, March-Apr. [Downloadable!]
  5. Johnson, George E, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 41-54, Spring. [Downloadable!] (restricted)
  6. Moshe Buchinsky, 1998. "The dynamics of changes in the female wage distribution in the USA: a quantile regression approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(1), pages 1-30. [Downloadable!]
  7. Gosling, Amanda & Machin, Stephen & Meghir, Costas, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Blackwell Publishing, vol. 67(4), pages 635-66, October.
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  8. Roger Koenker & Kevin F. Hallock, 2001. "Quantile Regression," Journal of Economic Perspectives, American Economic Association, vol. 15(4), pages 143-156, Fall. [Downloadable!] (restricted)
  9. José A. F. Machado & José Mata, 2001. "Earning functions in Portugal 1982-1994: Evidence from quantile regressions," Empirical Economics, Springer, vol. 26(1), pages 115-134. [Downloadable!] (restricted)
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