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A Simple Solution to the Identification Problem in Detailed Wage Decompositions

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  • Myeong-Su Yun

Abstract

Oaxaca 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 dummy variables 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 article proposes a simple and natural remedy for this problem by using "normalized" regressions, which enable me to identify the constant and estimates of each dummy variable. (JEL C20, J70) Copyright 2005, Oxford University Press.

Suggested Citation

  • Myeong-Su Yun, 2005. "A Simple Solution to the Identification Problem in Detailed Wage Decompositions," Economic Inquiry, Western Economic Association International, vol. 43(4), pages 766-772, October.
    • Handle: RePEc:oup:ecinqu:v:43:y:2005:i:4:p:766-772
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    File URL: http://hdl.handle.net/10.1093/ei/cbi053
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    JEL classification:

    • C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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