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Generalized Selection Bias and The Decomposition of Wage Differentials

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Author Info
Myeong-Su Yun () (Department of Economics, Rutgers University)

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Abstract

The major contribution of this paper is ending a new and flexible way to measure the effects of selection on log-wages. In this context, we offer a general approach to performing decomposition analysis when selection effects are present. We call the difference between unconditional and conditional expectations of the log-wages a generalized selection bias (GSB) when the two expectations are measured using the estimates from the joint estimation of the whole model (log-wages and selection equations) by the MLE method. The unconditional and conditional expectations are, respectively, the deterministic component of log-wages, and the deterministic component plus the conditional expectation of the stochastic component of log-wages, where the deterministic component is computed using the estimates from the joint estimation. That is, the GSB is the expectation of the residuals estimated from the joint estimation. It is appropriate to apply the Blinder-Oaxaca decomposition method to the wage differentials adjusted for the GSB. The GSB approach to decomposition analysis is not only easy to implement and flexible enough to apply to virtually any kind of selection issue, but also efficient because it uses full information. We illustrate the GSB approach by applying it to the racial wage differentials among women using data from the Current Population Survey. We discuss the possibility of using semi-parametric or Bayesian sampling method for the joint estimation and related modifications of decomposition analysis.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 69.

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Length: 55 pages
Date of creation: Nov 1999
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Handle: RePEc:iza:izadps:dp69

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Related research
Keywords: Decomposition analysis of wage differentials; discrimination; generalized selection bias; maximum likelihood estimation; Heckman’s two-step method; semi-parametric; Bayesian sampling;

Find related papers by JEL classification:
J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Hoffman, Saul D & Link, Charles R, 1984. "Selectivity Bias in Male Wage Equations: Black-White Comparisons," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 320-24, May. [Downloadable!] (restricted)
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    Other versions:
  5. Heckman, James J, 1974. "Shadow Prices, Market Wages, and Labor Supply," Econometrica, Econometric Society, vol. 42(4), pages 679-94, July. [Downloadable!] (restricted)
  6. Lee, Lung-Fei, 1983. "Generalized Econometric Models with Selectivity," Econometrica, Econometric Society, vol. 51(2), pages 507-12, March. [Downloadable!] (restricted)
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    Other versions:
  9. Blundell, Richard & Duncan, Alan & Meghir, Costas, 1992. "Taxation in Empirical Labour Supply Models: Lone Mothers in the UK," Economic Journal, Royal Economic Society, vol. 102(411), pages 265-78, March. [Downloadable!] (restricted)
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  14. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier. [Downloadable!] (restricted)
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    Other versions:
  18. Dolton, P J & Makepeace, G H & Van Der Klaauw, W, 1989. "Occupational Choice and Earnings Determination: The Role of Sample Selection and Non-pecuniary Factors," Oxford Economic Papers, Oxford University Press, vol. 41(3), pages 573-94, July. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tilahun Temesgen, 2006. "Decomposing Gender Wage Differentials in Urban Ethiopia: Evidence from Linked Employer--Employee (LEE) Manufacturing Survey Data," Global Economic Review, Taylor and Francis Journals, vol. 35(1), pages 43-66, March. [Downloadable!] (restricted)
  2. Fernanda Rivas & Máximo Rossi, 2000. "Discriminación salarial en Uruguay (1991-1997)," Documentos de Trabajo (working papers) 0700, Department of Economics - dECON. [Downloadable!]
  3. Ignacio García-Pérez & Juan F. Jimeno, 2005. "Public sector wage gaps in Spanish regions," Banco de España Working Papers 0526, Banco de España. [Downloadable!]
    Other versions:
  4. Fernanda Rivas & Máximo Rossi, 2002. "Evolución de las diferencias salariales entre el sector público y el sector privado en Uruguay," Documentos de Trabajo (working papers) 0202, Department of Economics - dECON. [Downloadable!]
    Other versions:
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