A Note on Decompositions in Fixed Effects Models in the Presence of Time-Invariant Characteristics
AbstractThough theoretically appealing and very popular amongst labour economists, the interpretation of the unexplained part of the Oaxaca (1973) decomposition as discrimination rather than an omitted variable problem in cross-section data has often been criticised. In this note it is shown that this problem extends also to panel data and moreover that in a fixed effects model including time invariant regressors omitted variables are a necessary and deliberate consequence. Monte Carlo simulation is used to show the extent of the bias. Special cases and practical implications are discussed.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1886.
Length: 10 pages
Date of creation: Dec 2005
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Find related papers by JEL classification:
- C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
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- Hausman, Jerry A. & Taylor, William E., 1981.
"Panel data and unobservable individual effects,"
Journal of Econometrics,
Elsevier, vol. 16(1), pages 155-155, May.
- 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.
- Heitmueller, Axel & Mavromaras, Kostas G., 2005.
"On the Post-Unification Development of Public and Private Pay in Germany,"
IZA Discussion Papers
1696, Institute for the Study of Labor (IZA).
- Axel Heitmueller & Kostas G. Mavromaras, 2007. "On The Post-Unification Development Of Public And Private Pay In Germany," Manchester School, University of Manchester, vol. 75(4), pages 422-444, 07.
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