A Simple Solution to the Identification Problem in Detailed Wage Decompositions
AbstractOaxaca and Ransom (1999) show that a detailed decomposition of the coefficients effect is destined to suffer from an identification problem since the detailed coefficients effect attributed to a dummy variable is not invariant to the choice of reference groups. It turns out that the identification problem in the decomposition equation is a disguised identification problem of constant and dummy variables in a regression equation. This paper proposes a simple and natural remedy for this problem by utilizing “normalized” regressions which enable us to identify the constant and estimates of each dummy variable. The identification problem is automatically resolved once we obtain “normalized” regression equations for two comparison groups.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 836.
Length: 16 pages
Date of creation: Jul 2003
Date of revision:
Publication status: published in: Economic Inquiry, 2005, 43 (4), 766-772
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Other versions of this item:
- Myeong-Su Yun, 2005. "A Simple Solution to the Identification Problem in Detailed Wage Decompositions," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 43(4), pages 766-772, October.
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- J70 - Labor and Demographic Economics - - Labor Discrimination - - - General
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