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Decomposition Analysis for a Binary Choice Model

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  • Myeong-Su Yun

    ()
    (University of Western Ontario)

Abstract

This paper introduces a new and simple decomposition method for a binary choice model that is equivalent to the Blinder-Oaxaca decomposition analysis for wage differentials. The decomposition method is first developed for a single probit model and later generalized to a simultaneous equations model. Using Taylor expansion, we approximate the differences in the probabilities of choosing option 1 over option 0 between two groups in order to find the effects of the differences in ``each'' individual characteristic and the differences in ``each'' coefficient. We implement this decomposition analysis studying the racial gap in female labor market participation rates. The racial gap of participation rates among women can be almost exclusively explained by the differences in the coefficients.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 200001.

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Date of creation: 26 Apr 2000
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Handle: RePEc:rut:rutres:200001

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Keywords: decomposition analysis; selection bias; labor market participation; probit;

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  1. Claudia Goldin, 1990. "Understanding the Gender Gap: An Economic History of American Women," NBER Books, National Bureau of Economic Research, Inc, number gold90-1.
  2. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226041162, June.
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Cited by:
  1. Yun, Myeong-Su, 2004. "Decomposing differences in the first moment," Economics Letters, Elsevier, vol. 82(2), pages 275-280, February.
  2. Gang, Ira N. & Rivera-Batiz, Francisco L. & Yun, Myeong-Su, 2002. "Economic Strain, Ethnic Concentration and Attitudes Towards Foreigners in the European Union," IZA Discussion Papers 578, Institute for the Study of Labor (IZA).
  3. Patrick A. Puhani, 2002. "Wage Rigidities in Western Germany? Microeconometric Evidence from the 1990s," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 D3-3, International Conferences on Panel Data.
  4. Benhura, Miracle, 2007. "Determinants of South African Women’s Labour Force Participation, 1995–2004," IZA Discussion Papers 3119, Institute for the Study of Labor (IZA).
  5. Bertranou, Fabio & Casanova, Luis & Sarabia, Marianela, 2013. "How, Why and in What Sectors Employment Informality Decreased in Argentina from 2003 to 2012," MPRA Paper 47467, University Library of Munich, Germany.

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