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Earnings Functions and the Measurement of the Determinants of Wage Dispersion: Extending Oaxaca's Approach

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  • Jacques Silber
  • Joseph Deutsch

Abstract

This paper extends the famous Blinder (1973) and Oaxaca (1973) discrimination analysis in several directions. First the wage difference breakdown is not limited to two groups. Second a decomposition technique is proposed that allows analyzing the determinants of the overall wage dispersion. The approach presented combines two techniques. The first one is popular in the field of income inequality measurement and concerns the breakdown of inequality by population subgroups. The second one, very common in the labor economics literature, uses Mincerian earnings functions to derive a decomposition of wage differences into components measuring respectively group differences in the average values of the explanatory variables, in the coefficients of these variables in the earnings functions and in the unobservable characteristics. This methodological novelty allows one to determine the exact impact of each of these three elements on the overall wage dispersion, on the dispersion within and between groups and on the degree of overlap between the wage distributions of the various groups.

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Paper provided by FEDEA in its series Working Papers with number 2007-19.

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Date of creation: Jun 2007
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Handle: RePEc:fda:fdaddt:2007-19

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  1. Richard B. Freeman, 1995. "Are Your Wages Set in Beijing?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 15-32, Summer.
  2. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 30(3), pages 1333-81, September.
  3. Dagum, Camilo, 1997. "A New Approach to the Decomposition of the Gini Income Inequality Ratio," Empirical Economics, Springer, Springer, vol. 22(4), pages 515-31.
  4. Welch, Finis, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(5), pages S65-97, October.
  5. Blau, Francine D & Kahn, Lawrence M, 1996. "Wage Structure and Gender Earnings Differentials: An International Comparison," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 63(250), pages S29-62, Suppl..
  6. Claudia Goldin & Robert A. Margo, 1991. "The Great Compression: The Wage Structure in the United States at Mid- Century," NBER Working Papers 3817, National Bureau of Economic Research, Inc.
  7. Robert H. Topel, 1997. "Factor Proportions and Relative Wages: The Supply-Side Determinants of Wage Inequality," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 55-74, Spring.
  8. Francine D. Blau & Lawrence M. Kahn, 2000. "Gender Differences in Pay," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 14(4), pages 75-99, Fall.
  9. Borjas, George J, 1985. "Assimilation, Changes in Cohort Quality, and the Earnings of Immigrants," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 3(4), pages 463-89, October.
  10. Nicole M. Fortin & Thomas Lemieux, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 75-96, Spring.
  11. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
  12. George J. Borjas, 1994. "The Economics of Immigration," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 32(4), pages 1667-1717, December.
  13. Finis Welch, 1979. "Effects of Cohort Size on Earnings: The Baby Boom Babies' Financial Bust," UCLA Economics Working Papers, UCLA Department of Economics 146, UCLA Department of Economics.
  14. Friedberg, Rachel M, 2000. "You Can't Take It with You? Immigrant Assimilation and the Portability of Human Capital," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 18(2), pages 221-51, April.
  15. Barry R. Chiswick, 1998. "Hebrew language usage: Determinants and effects on earnings among immigrants in Israel," Journal of Population Economics, Springer, Springer, vol. 11(2), pages 253-271.
  16. Chiswick, Barry R, 1978. "The Effect of Americanization on the Earnings of Foreign-born Men," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(5), pages 897-921, October.
  17. Neuman, Shoshana, 1999. "Aliyah to Israel: Immigration under Conditions of Adversity," IZA Discussion Papers 89, Institute for the Study of Labor (IZA).
  18. George E. Johnson, 1997. "Changes in Earnings Inequality: The Role of Demand Shifts," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 11(2), pages 41-54, Spring.
  19. Berger, Mark C, 1985. "The Effect of Cohort Size on Earnings Growth: A Reexamination of the Evidence," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(3), pages 561-73, June.
  20. 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.
  21. Adrian Wood, 1995. "How Trade Hurt Unskilled Workers," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 9(3), pages 57-80, Summer.
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Cited by:
  1. Stéphane Mussard & Pi Alperin María Noel & Françoise Seyte & Michel Terraza, 2005. "Extensions Of Dagum’S Gini Decomposition," Cahiers de recherche, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke 05-07, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  2. João Sousa Andrade & Adelaide Duarte & Marta Simões, 2010. "The impact of EU integration on the Portuguese distribution of employees' earnings," GEMF Working Papers 2010-08, GEMF - Faculdade de Economia, Universidade de Coimbra.

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