Earnings Functions and the Measurement of the Determinants of Wage Dispersion: Extending Oaxaca’s Approach
AbstractThis paper extends the famous Blinder (1973) and Oaxaca (1973) discrimination in several directions. First, the wage difference breakdown is not limited to two groups. Second, a decomposition technique is proposed that allows analysis of the determinants of the overall wage dispersion. The authors’ approach combines two techniques. The first of these is popular in the field of income inequality measurement and concerns the breakdown of inequality by population subgroup. The second technique, very common in the literature of labor economics, uses Mincerian earnings functions to derive a decomposition of wage differences into components measuring group differences in the average values of the explanatory variables, in the coefficients of these variables in the earnings functions, and in the unobservable characteristics. This methodological novelty allows one to determine the exact impact of each of these three elements on the overall wage dispersion, on the dispersion within and between-groups, and on the degree of overlap between the wage distributions of the various groups. However, this paper goes beyond a static analysis insofar as it succeeds in breaking down the change over time in the overall wage dispersion and its components (both between and within group dispersion and group overlapping) into elements related to changes in the value of the explanatory variables and the coefficients of those variables in the earnings functions, in the unobservable characteristics, and in the relative size of the various groups.
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Bibliographic InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_521.
Date of creation: Nov 2007
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Other versions of this item:
- Jacques Silber & Joseph Deutsch, 2007. "Earnings Functions and the Measurement of the Determinants of Wage Dispersion: Extending Oaxaca's Approach," Working Papers 2007-19, FEDEA.
- NEP-ALL-2007-12-08 (All new papers)
- NEP-LAB-2007-12-08 (Labour Economics)
- NEP-LTV-2007-12-08 (Unemployment, Inequality & Poverty)
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