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Estimating Labour Market Discrimination with Selectivity Corrected Wage Equations: Methodological Considerations and an Illustration from Israel

Author

Listed:
  • Neuman, Shoshana
  • Oaxaca, Ronald L

Abstract

This paper presents a modified and improved methodology for the decomposition of wage differentials between two groups of workers into an endowment component and a discrimination component. The standard decomposition technique does not take into account different probabilities of entering the profession under discussion. To incorporate this type of segregation into the wage differential decompositions, two statistical methodologies are merged: the Oaxaca methodology and the Heckman selectivity bias correction procedure. Using information derived from the entrance equations, the decomposition procedure is then modified, in order to take into account the contribution of segregation to the endowments and the discrimination components. It appears that there is more than one way to do it. The proposed methodology is applied to the analysis of wages of professionals in the Israeli labour market. Comparisons are made between the two genders and between Westerners and Easterners. Our results show that discrimination plays a more important role in explaining gender wage differentials than in explaining ethnic wage gaps and that selectivity corrected decompositions are quite capable of yielding very different conclusions than those based on the standard decompositions.

Suggested Citation

  • Neuman, Shoshana & Oaxaca, Ronald L, 1998. "Estimating Labour Market Discrimination with Selectivity Corrected Wage Equations: Methodological Considerations and an Illustration from Israel," CEPR Discussion Papers 1915, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:1915
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    Citations

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    Cited by:

    1. Robert Breunig & Sandrine Rospabe, 2005. "Parametric vs. semi-parametric estimation of the male-female wage gap: An application to France," ANU Working Papers in Economics and Econometrics 2005-458, Australian National University, College of Business and Economics, School of Economics.
    2. Anna M. Falzoni & Alessandra Venturini & Claudia Villosio, 2004. "Wage Differentials and International Trade in Italy Using Individual Micro Data 1991-1996," Development Working Papers 190, Centro Studi Luca d'Agliano, University of Milano.
    3. Heinze, Anja & Beninger, Denis & Beblo, Miriam & Laisney, François, 2003. "Measuring Selectivity-Corrected Gender Wage Gaps in the EU," ZEW Discussion Papers 03-74, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Michael Ransom & Ronald L. Oaxaca, 2005. "Intrafirm Mobility and Sex Differences in Pay," ILR Review, Cornell University, ILR School, vol. 58(2), pages 219-237, January.
    5. DeVoretz, Don J. & Pivnenko, Sergiy, 2005. "Self-Selection, Immigrant Public Finance Performance and Canadian Citizenship," IZA Discussion Papers 1463, Institute for the Study of Labor (IZA).
    6. Axel Heitmueller, 2006. "Public-private sector pay differentials in a devolved Scotland," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 295-323, November.
    7. Fernanda Rivas & Máximo Rossi, 2000. "Discriminación salarial en Uruguay (1991-1997)," Documentos de Trabajo (working papers) 0700, Department of Economics - dECON.
    8. Ssebagala, Richard, 2007. "Wage Determination and Gender Discrimination in Uganda," Research Series 150483, Economic Policy Research Centre (EPRC).
    9. Angela Cipollone, 2011. "Education as a Precautionary Asset," Working Papers CELEG 1108, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    10. David Madden, 2000. "Towards a broader explanation of male-female wage differences," Applied Economics Letters, Taylor & Francis Journals, vol. 7(12), pages 765-770.
    11. Jean-Louis Arcand & Béatrice D'hombres, 2004. "Racial discrimination in the Brazilian labour market: wage, employment and segregation effects," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(8), pages 1053-1066.
    12. Yun, Myeong-Su, 1999. "Generalized Selection Bias and The Decomposition of Wage Differentials," IZA Discussion Papers 69, Institute for the Study of Labor (IZA).
    13. Marisa Bucheli & Graciela Sanroman, 2004. "Salarios Femeninos en el Uruguay ¿Existe un Techo de Cristal?," Documentos de Trabajo (working papers) 0504, Department of Economics - dECON.
    14. Sandy, Jonathan & Gonzalez, Arturo & Hilmer, Michael J., 2006. "Alternative paths to college completion: Effect of attending a 2-year school on the probability of completing a 4-year degree," Economics of Education Review, Elsevier, vol. 25(5), pages 463-471, October.
    15. Fernanda Rivas & Máximo Rossi, 2002. "Evolución de las diferencias salariales entre el sector público y el sector privado en Uruguay," Documentos de Trabajo (working papers) 0202, Department of Economics - dECON.
    16. David (David Patrick) Madden, 1999. "Labour Market Discrimination on the Basis of Health: An Application to UK Data," Working Papers 199913, School of Economics, University College Dublin.
    17. Muhammad Asali, 2008. "Wage Differentials in Israel: Endowments, Occupational Segregation, Discrimination, and Selectivity," Working Papers 011-08, International School of Economics at TSU, Tbilisi, Republic of Georgia.
    18. Jaume Garcia Villar & Pedro J. Hernández & Ángel López-Nicolás, 2002. "An investigation of the relationship between job characteristics and the gender wage gap," Economics Working Papers 627, Department of Economics and Business, Universitat Pompeu Fabra.
    19. Marisa Bucheli & Rafael Porzecanski, 2008. "Racial Inequality in the Uruguayan Labor Market:An analysis of wage differentials between Afrodescendants and whites," Documentos de Trabajo (working papers) 1508, Department of Economics - dECON.
    20. Heitmueller, Axel, 2004. "Public-Private Sector Wage Differentials in Scotland: An Endogenous Switching Model," IZA Discussion Papers 992, Institute for the Study of Labor (IZA).

    More about this item

    Keywords

    Discrimination; Ethnicity; Gender; Human Capital; Selectivity; Wage Differentials;

    JEL classification:

    • J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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