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Matching as a Tool to Decompose Wage Gaps

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  • Nopo, Hugo

    ()
    (Inter-American Development Bank)

Abstract

In this paper I present a methodology that uses matching comparisons to explain gender differences in wages. The approach emphasizes gender differences in the supports of the distributions of observable characteristics and provides useful insights about the distribution of the unexplained gender differences in pay. The proposed methodology, a non-parametric alternative to the Blinder-Oaxaca (BO) wage gap decomposition, does not require the estimation of earnings equations. It breaks down the gap into four additive elements, two of which are analogous to the elements of the BO decomposition (but computed only over the common support of the distributions of characteristics), while the other two account for differences in the supports. Using data for Peru in the period 1986-2000, I found that this problem of non-comparability accounts for 23% and 30% of the male and female working populations respectively. The matching methodology allows us to quantify the effect of explicitly recognizing these differences in the supports. In this way, the 45% gender wage gap in Peru is decomposed as: 11% explained by differences in the supports, 6% explained by differences in the distributions of individual characteristics and the remaining 28% cannot be explained by differences in observable individuals’ characteristics. Approximately half of the latter is due to unexplained differences in the highest quintile of the wage distribution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 981.

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Length: 51 pages
Date of creation: Jan 2004
Date of revision:
Publication status: published in: Review of Economics and Statistics, 2008, 90 (2), 290-299
Handle: RePEc:iza:izadps:dp981

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Keywords: Latin America; non-parametric; gender wage gap; matching;

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References

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  1. Blau, Francine D & Kahn, Lawrence M, 1996. "International Differences in Male Wage Inequality: Institutions versus Market Forces," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 791-836, August.
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  11. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  12. Ruthanne Deutsch & Andrew Morrison & Hugo Nopo & Claudia Piras, 2005. "Working Within Confines: Occupational Segregation By Sex For Three Latin American Countries," The IUP Journal of Applied Economics, IUP Publications, vol. 0(3), pages 50-59, May.
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  20. repec:fth:coluec:9899-01 is not listed on IDEAS
  21. 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.
  22. Dolton, Peter J & Makepeace, Gerald H, 1987. "Marital Status, Child Rearing and Earnings Differentials in the Graduate Labour Market," Economic Journal, Royal Economic Society, vol. 97(388), pages 897-922, December.
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