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

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  • Fairlie, Robert W.

    ()
    (University of California, Santa Cruz)

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. I also compare the estimates to Blinder-Oaxaca decomposition estimates and discuss an example of when the Blinder-Oaxaca technique may be problematic.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1917.

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Length: 19 pages
Date of creation: Jan 2006
Date of revision:
Publication status: published in: Journal of Economic and Social Measurement, 2005, 30(4), 305-316
Handle: RePEc:iza:izadps:dp1917

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Related research

Keywords: Blinder-Oaxaca decomposition; Probit; Logit; decomposition; race; gender;

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  1. 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.).
  2. Fairlie, Robert, 2014. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Santa Cruz Department of Economics, Working Paper Series qt49c4n0fg, Department of Economics, UC Santa Cruz.
  3. 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.
  4. 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.
  5. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
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