An Extension of the Blinder-Oaxaca Decomposition Technique to Logit and Probit Models

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An Extension of the Blinder-Oaxaca Decomposition Technique to Logit and Probit Models

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Robert W. Fairlie

Abstract

The Blinder-Oaxaca decomposition technique is widely used to identify and quantify the separate contributions of group differences in measurable characteristics, such as education, experience, marital status, and geographical differences to racial and gender gaps in outcomes. The technique cannot be used directly, however, if the outcome is binary and the coefficients are from a logit or probit model. I describe a relatively simple method of performing a decomposition that uses estimates from a logit or probit model. Expanding on the original application of the technique in Fairlie (1999), I provide a more thorough discussion of how to apply the technique, an analysis of the sensitivity of the decomposition estimates to different parameters, and the calculation of standard errors.

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Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 873.

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Length: 15 pages
Date of creation: Nov 2003
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Handle: RePEc:egc:wpaper:873

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Find related papers by JEL classification:
C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
J7 - Labor and Demographic Economics - - Labor Discrimination

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Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October. [Downloadable!] (restricted)
Other versions:
- Ronald Oaxaca, . "Male-Female Wage Differentials in Urban Labor Markets," Working Papers 396, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March. [Downloadable!] (restricted)
Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January. [Downloadable!] (restricted)
David Neumark, 1987. "Employers' discriminatory behavior and the estimation of wage discrimination," Special Studies Papers 227, Board of Governors of the Federal Reserve System (U.S.).

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