Unexplained Gaps and Oaxaca-Blinder Decompositions
AbstractWe analyze four methods to measure unexplained gaps in mean outcomes: three decompositions based on the seminal work of Oaxaca (1973) and Blinder (1973) and an approach involving a seemingly naïve regression that includes a group indicator variable. Our analysis yields two principal findings. We first show that a commonlyused pooling decomposition systematically overstates the contribution of observable characteristics to mean outcome differences, therefore understating unexplained differences. We also show that the coefficient on a group indicator variable from an OLS regression is an attractive approach for obtaining a single measure of the unexplained gap. We then provide three empirical examples that explore the practical importance of our analytic results.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 600.
Date of creation: Feb 2009
Date of revision:
Other versions of this item:
- Elder, Todd E. & Goddeeris, John H. & Haider, Steven J., 2010. "Unexplained gaps and Oaxaca-Blinder decompositions," Labour Economics, Elsevier, vol. 17(1), pages 284-290, January.
- Elder, Todd E. & Goddeeris, John H. & Haider, Steven J., 2009. "Unexplained Gaps and Oaxaca-Blinder Decompositions," IZA Discussion Papers 4159, Institute for the Study of Labor (IZA).
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, and Immigrants; Non-labor Discrimination
- J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-04-13 (All new papers)
- NEP-ECM-2009-04-13 (Econometrics)
- NEP-LAB-2009-04-13 (Labour Economics)
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