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Standard Errors for the Blinder-Oaxaca Decomposition

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  • Ben Jann

    (Soziologie, ETH Zurich)

Abstract

The decomposition technique introduced by Blinder (1973) and Oaxaca (1973) is widely used to study outcome differences between groups. For example, the technique is commonly applied to the analysis of the gender wage gap. However, despite the procedure's frequent use, very little attention has been paid to the issue of estimating the sampling variances of the decomposition components. We therefore suggest an approach that introduces consistent variance estimators for several variants of the decomposition. The accuracy of the new estimators under ideal conditions is illustrated with the results of a Monte Carlo simulation. As a second check, the estimators are compared to bootstrap results obtained using real data. In contrast to previously proposed statistics, the new method takes into account the extra variation imposed by stochastic regressors.

Suggested Citation

  • Ben Jann, 2005. "Standard Errors for the Blinder-Oaxaca Decomposition," German Stata Users' Group Meetings 2005 03, Stata Users Group.
    • Handle: RePEc:boc:dsug05:03
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    File URL: http://repec.org/dsug2005/oaxaca_se_handout.pdf
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    References listed on IDEAS

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    1. Reimers, Cordelia W, 1983. "Labor Market Discrimination against Hispanic and Black Men," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 570-579, November.
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