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A Detailed Decomposition for Limited Dependent Variable Models

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  • Schwiebert, Jörg

Abstract

In this paper, we consider a detailed decomposition method for limited dependent variable models. That means, we propose a method to decompose the differential in the (limited dependent) outcome variable between two groups into the contributions of the explanatory variables. We provide a theoretical derivation of the detailed decomposition and show how this decomposition can be estimated consistently. In contrast to decomposition approaches already presented in the literature, our method leads to a unique decomposition and accounts for the nonlinearity of the underlying econometric model in a rather intuitive way. Our results can be applied to the most common limited dependent variable models such as probit, logit and tobit models.

Suggested Citation

  • Schwiebert, Jörg, 2012. "A Detailed Decomposition for Limited Dependent Variable Models," Hannover Economic Papers (HEP) dp-506, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  • Handle: RePEc:han:dpaper:dp-506
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    References listed on IDEAS

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    1. Bernd Fitzenberger & Karsten Kohn & Qingwei Wang, 2011. "The erosion of union membership in Germany: determinants, densities, decompositions," Journal of Population Economics, Springer;European Society for Population Economics, vol. 24(1), pages 141-165, January.
    2. Even, William E. & Macpherson, David A., 1990. "Plant size and the decline of unionism," Economics Letters, Elsevier, vol. 32(4), pages 393-398, April.
    3. William E. Even & David A. Macpherson, 1993. "The Decline of Private-Sector Unionism and the Gender Wage Gap," Journal of Human Resources, University of Wisconsin Press, vol. 28(2), pages 279-296.
    4. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
    5. Fortin, Nicole & Lemieux, Thomas & Firpo, Sergio, 2011. "Decomposition Methods in Economics," Handbook of Labor Economics, Elsevier.
    6. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
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    More about this item

    Keywords

    Decomposition methods; detailed decomposition; explained di erential; limited dependent variable models; probit; logit; tobit;

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J70 - Labor and Demographic Economics - - Labor Discrimination - - - General

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