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Decomposition scheme matters more than you may think

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  • Anna Naszodi

Abstract

This paper promotes the application of a path-independent decomposition scheme. Besides presenting some theoretical arguments supporting this decomposition scheme, this study also illustrates the difference between the path-independent decomposition scheme and a popular sequential decomposition with an empirical application of the two schemes. The empirical application is about identifying a directly unobservable phenomenon, i.e. the changing social gap between people from different educational strata, through its effect on marriages and cohabitations. It exploits census data from four waves between 1977 and 2011 about the American, French, Hungarian, Portuguese, and Romanian societies. For some societies and periods, the outcome of the decomposition is found to be highly sensitive to the choice of the decomposition scheme. These examples illustrate the point that a careful selection of the decomposition scheme is crucial for adequately documenting the dynamics of unobservable factors.

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  • Anna Naszodi, 2021. "Decomposition scheme matters more than you may think," Papers 2104.09141, arXiv.org.
    • Handle: RePEc:arx:papers:2104.09141
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    References listed on IDEAS

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    3. Dupuy, Arnaud & Weber, Simon, 2018. "Marital Patterns and Income Inequality," IZA Discussion Papers 11572, Institute of Labor Economics (IZA).
    4. Ben Jann, 2008. "The Blinder–Oaxaca decomposition for linear regression models," Stata Journal, StataCorp LP, vol. 8(4), pages 453-479, December.
    5. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
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