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Decomposition Analysis for a Binary Choice Model

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  • Yun, Myeong-Su

    ()
    (Tulane University)

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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Bibliographic 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: 34 pages
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:iza:izadps:dp145

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

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References

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  1. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226041162, May.
  2. Claudia Goldin, 1990. "Understanding the Gender Gap: An Economic History of American Women," NBER Books, National Bureau of Economic Research, Inc, number gold90-1, October.
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Cited by:
  1. Patrick A. Puhani, 2002. "Wage Rigidities in Western Germany? Microeconometric Evidence from the 1990s," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D3-3, International Conferences on Panel Data.
  2. Yun, Myeong-Su, 2004. "Decomposing differences in the first moment," Economics Letters, Elsevier, vol. 82(2), pages 275-280, February.
  3. Benhura, Miracle, 2007. "Determinants of South African Women’s Labour Force Participation, 1995–2004," IZA Discussion Papers 3119, Institute for the Study of Labor (IZA).
  4. Francisco Rivera-Batiz & Myeong-Su Yun & Ira Gang, 2002. "Economic Strain, Ethnic Concentration and Attitudes Towards Foreigners in the European Union," Departmental Working Papers 200214, Rutgers University, Department of Economics.
  5. Bertranou, Fabio & Casanova, Luis & Sarabia, Marianela, 2013. "How, Why and in What Sectors Employment Informality Decreased in Argentina from 2003 to 2012," MPRA Paper 47467, University Library of Munich, Germany.

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