IDEAS home Printed from https://ideas.repec.org/p/brd/wpaper/127.html
   My bibliography  Save this paper

Average Gaps and Oaxaca–Blinder Decompositions: A Cautionary Tale about Regression Estimates of Racial Differences in Labor Market Outcomes

Author

Listed:
  • Tymon Sloczynski

    () (Brandeis University and IZA)

Abstract

In this paper I demonstrate, both theoretically and empirically, that the interpretation of regression estimates of between-group differences in economic outcomes depends on the relative sizes of subpopulations under study. When the disadvantaged group is small, regression estimates are similar to its average loss. When this group is instead a numerical majority, regression estimates are similar to the average gain for advantaged individuals. I analyze black–white test score gaps using ECLS-K data and black–white wage gaps using CPS, NLSY79, and NSW data, documenting that the interpretation of regression estimates varies dramatically across applications. Methodologically, I also develop a new version of the Oaxaca–Blinder decomposition whose unexplained component recovers a parameter referred to as the average outcome gap. Under a particular conditional independence assumption, this estimand is equivalent to the average treatment effect (ATE). Finally, I provide treatment-effects reinterpretations of the Reimers, Cotton, and Fortin decompositions.

Suggested Citation

  • Tymon Sloczynski, 2018. "Average Gaps and Oaxaca–Blinder Decompositions: A Cautionary Tale about Regression Estimates of Racial Differences in Labor Market Outcomes," Working Papers 127, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:127
    as

    Download full text from publisher

    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP127.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Paul Allanson & Jonathan Atkins, 2005. "The Evolution of the Racial Wage Hierarchy in Post-Apartheid South Africa," Journal of Development Studies, Taylor & Francis Journals, vol. 41(6), pages 1023-1050.
    2. Chinhui Juhn, 2003. "Labor Market Dropouts and Trends in the Wages of Black and White Men," ILR Review, Cornell University, ILR School, vol. 56(4), pages 643-662, July.
    3. Catherine J. Weinberger & Peter J. Kuhn, 2010. "Changing Levels or Changing Slopes? The Narrowing of the Gender Earnings Gap 1959 – 1999," ILR Review, Cornell University, ILR School, vol. 63(3), pages 384-406, April.
    4. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-620, September.
    5. Grogger, Jeff, 1996. "Does School Quality Explain the Recent Black/White Wage Trend?," Journal of Labor Economics, University of Chicago Press, vol. 14(2), pages 231-253, April.
    6. Joseph A Ritter & Lowell J Taylor, 2011. "Racial Disparity in Unemployment," The Review of Economics and Statistics, MIT Press, vol. 93(1), pages 30-42, February.
    7. Kevin Lang & Jee-Yeon K. Lehmann, 2012. "Racial Discrimination in the Labor Market: Theory and Empirics," Journal of Economic Literature, American Economic Association, vol. 50(4), pages 959-1006, December.
    8. Roland G. Fryer & Steven D. Levitt, 2004. "Understanding the Black-White Test Score Gap in the First Two Years of School," The Review of Economics and Statistics, MIT Press, vol. 86(2), pages 447-464, May.
    9. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    10. Chay, Kenneth Y. & Lee, David S., 2000. "Changes in relative wages in the 1980s Returns to observed and unobserved skills and black-white wage differentials," Journal of Econometrics, Elsevier, vol. 99(1), pages 1-38, November.
    11. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
    12. DiNardo, John & Fortin, Nicole M & Lemieux, Thomas, 1996. "Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric Approach," Econometrica, Econometric Society, vol. 64(5), pages 1001-1044, September.
    13. Barsky R. & Bound J. & Charles K.K. & Lupton J.P., 2002. "Accounting for the Black-White Wealth Gap: A Nonparametric Approach," Journal of the American Statistical Association, American Statistical Association, vol. 97, pages 663-673, September.
    14. George Sherer, 2000. "Intergroup Economic Inequality in South Africa: The Post-apartheid Era," American Economic Review, American Economic Association, vol. 90(2), pages 317-321, May.
    15. Ricardo Mora, 2008. "A nonparametric decomposition of the Mexican American average wage gap," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 23(4), pages 463-485.
    16. Kevin Lang & Michael Manove, 2011. "Education and Labor Market Discrimination," American Economic Review, American Economic Association, vol. 101(4), pages 1467-1496, June.
    17. Jesse Rothstein & Nathan Wozny, 2013. "Permanent Income and the Black-White Test Score Gap," Journal of Human Resources, University of Wisconsin Press, vol. 48(3), pages 510-544.
    18. Hugo Ñopo, 2008. "Matching as a Tool to Decompose Wage Gaps," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 290-299, May.
    19. Francine D. Blau & Andrea H. Beller, 1988. "Trends in Earnings Differentials by Gender, 1971–1981," ILR Review, Cornell University, ILR School, vol. 41(4), pages 513-529, July.
    20. Nicole M. Fortin, 2008. "The Gender Wage Gap among Young Adults in the United States: The Importance of Money versus People," Journal of Human Resources, University of Wisconsin Press, vol. 43(4).
    21. D. James Greiner & Donald B. Rubin, 2011. "Causal Effects of Perceived Immutable Characteristics," The Review of Economics and Statistics, MIT Press, vol. 93(3), pages 775-785, August.
    22. Celeste K. Carruthers & Marianne H. Wanamaker, 2017. "Separate and Unequal in the Labor Market: Human Capital and the Jim Crow Wage Gap," Journal of Labor Economics, University of Chicago Press, vol. 35(3), pages 655-696.
    23. Doris Weichselbaumer & Rudolf Winter-Ebmer, 2005. "A Meta-Analysis of the International Gender Wage Gap," Journal of Economic Surveys, Wiley Blackwell, vol. 19(3), pages 479-511, July.
    24. Dan Black & Amelia Haviland & Seth Sanders & Lowell Taylor, 2006. "Why Do Minority Men Earn Less? A Study of Wage Differentials among the Highly Educated," The Review of Economics and Statistics, MIT Press, vol. 88(2), pages 300-313, May.
    25. Martin Huber, 2015. "Causal Pitfalls in the Decomposition of Wage Gaps," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 33(2), pages 179-191, April.
    26. José Mata & José A. F. Machado, 2005. "Counterfactual decomposition of changes in wage distributions using quantile regression," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(4), pages 445-465.
    27. Neal, Derek A & Johnson, William R, 1996. "The Role of Premarket Factors in Black-White Wage Differences," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 869-895, October.
    28. Melly, Blaise, 2005. "Decomposition of differences in distribution using quantile regression," Labour Economics, Elsevier, vol. 12(4), pages 577-590, August.
    29. Kerwin Kofi Charles & Jonathan Guryan, 2011. "Studying Discrimination: Fundamental Challenges and Recent Progress," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 479-511, September.
    30. Francine D. Blau & Lawrence Kahn, 2016. "The Gender Wage Gap: Extent, Trends, and Explanations," CESifo Working Paper Series 5722, CESifo Group Munich.
    31. Astrid Kunze, 2008. "Gender wage gap studies: consistency and decomposition," Empirical Economics, Springer, vol. 35(1), pages 63-76, August.
    32. repec:tpr:restat:v:99:y:2017:i:4:p:652-656 is not listed on IDEAS
    33. David Neumark, 1988. "Employers' Discriminatory Behavior and the Estimation of Wage Discrimination," Journal of Human Resources, University of Wisconsin Press, vol. 23(3), pages 279-295.
    34. Elder, Todd E. & Goddeeris, John H. & Haider, Steven J., 2010. "Unexplained gaps and Oaxaca-Blinder decompositions," Labour Economics, Elsevier, vol. 17(1), pages 284-290, January.
    35. David Card & Alan B. Krueger, 1992. "School Quality and Black-White Relative Earnings: A Direct Assessment," The Quarterly Journal of Economics, Oxford University Press, vol. 107(1), pages 151-200.
    36. Timothy N. Bond & Kevin Lang, 2013. "The Evolution of the Black-White Test Score Gap in Grades K–3: The Fragility of Results," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1468-1479, December.
    37. Rothe, Christoph, 2010. "Nonparametric estimation of distributional policy effects," Journal of Econometrics, Elsevier, vol. 155(1), pages 56-70, March.
    38. Francine D. Blau & Lawrence M. Kahn, 2017. "The Gender Wage Gap: Extent, Trends, and Explanations," Journal of Economic Literature, American Economic Association, vol. 55(3), pages 789-865, September.
    39. Winters, John V. & Hirsch, Barry, 2012. "An Anatomy of Racial and Ethnic Trends in Male Earnings," IZA Discussion Papers 6766, Institute of Labor Economics (IZA).
    40. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    41. Cotton, Jeremiah, 1988. "On the Decomposition of Wage Differentials," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 236-243, May.
    42. Sergio Pinheiro Firpo, 2017. "Identifying and measuring economic discrimination," IZA World of Labor, Institute of Labor Economics (IZA), pages 347-347, March.
    43. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, March.
    44. 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.
    45. 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.
    46. Patrick Kline, 2011. "Oaxaca-Blinder as a Reweighting Estimator," American Economic Review, American Economic Association, vol. 101(3), pages 532-537, May.
    47. Joshua D. Angrist, 1998. "Estimating the Labor Market Impact of Voluntary Military Service Using Social Security Data on Military Applicants," Econometrica, Econometric Society, vol. 66(2), pages 249-288, March.
    48. Duncan, Gregory M & Leigh, Duane E, 1985. "The Endogeneity of Union Status: An Empirical Test," Journal of Labor Economics, University of Chicago Press, vol. 3(3), pages 385-402, July.
    49. Juhn, Chinhui & Murphy, Kevin M & Pierce, Brooks, 1993. "Wage Inequality and the Rise in Returns to Skill," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 410-442, June.
    50. Kerwin Kofi Charles & Erik Hurst, 2002. "The Transition To Home Ownership And The Black-White Wealth Gap," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 281-297, May.
    51. Leanna Stiefel & Amy Ellen Schwartz & Ingrid Gould Ellen, 2007. "Disentangling the racial test score gap: Probing the evidence in a large urban school district," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(1), pages 7-30.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    black–white gaps; decomposition methods; test scores; treatment effects; wages;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:brd:wpaper:127. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eliza Dumais). General contact details of provider: http://edirc.repec.org/data/gsbraus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.