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Decomposition Analysis for a Binary Choice Model

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Author Info
Yun, Myeong-Su () (Rutgers University, New Brunswick, USA)

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Abstract

This paper introduces a new and simple decomposition method for a binary choice model that is equivalent to the Blinder-Oaxaca decomposition analysis for wage differentials. The decomposition method is first developed for a single probit model and later generalized to a simultaneous equations model. Using Taylor expansion, we approximate the differences in the probabilities of choosing option 1 over option 0 between two groups in order to find the effects ofthe differences in "each" individual characteristic and the differences in "each" coefficient. We implement this decomposition analysis studying the racial gap in female labor market participation rates. The racial gap of participation rates among women can be almost exclusively explained by the differences in the coefficients.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 145.

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Length: 33 pages
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:iza:izadps:dp145

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Related research
Keywords: Decomposition analysis; binary choice; probit; selection bias; maximum likelihood estimation; labor market participation;

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Find related papers by JEL classification:
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models

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  1. Puhani, Patrick A., 2001. "Wage Rigidities in Western Germany? Microeconometric Evidence from the 1990s," IRISS Working Paper Series 2001-07, IRISS at CEPS/INSTEAD. [Downloadable!]
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  2. Miracle Ntuli, 2007. "Determinants of South African Women’s Labour Force Participation, 1995-2004," IZA Discussion Papers 3119, Institute for the Study of Labor (IZA). [Downloadable!]
  3. Gang, Ira N. & Rivera-Batiz, Francisco L. & Yun, Myeong-Su, 2002. "Economic Strain, Ethnic Concentration and Attitudes Towards Foreigners in the European Union," IZA Discussion Papers 578, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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