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Decomposition Analysis for a Binary Choice Model

  • Yun, Myeong-Su


    (Tulane University)

This paper introduces a new and simple decomposition method for a binary choice model that is equivalent to the Blinder-Oaxaca decomposition analysis for wage differentials. The decomposition method is first developed for a single probit model and later generalized to a simultaneous equations model. Using Taylor expansion, we approximate the differences in the probabilities of choosing option 1 over option 0 between two groups in order to find the effects ofthe differences in "each" individual characteristic and the differences in "each" coefficient. We implement this decomposition analysis studying the racial gap in female labor market participation rates. The racial gap of participation rates among women can be almost exclusively explained by the differences in the coefficients.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 145.

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Length: 34 pages
Date of creation: Apr 2000
Date of revision:
Handle: RePEc:iza:izadps:dp145
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  1. Goldin, Claudia, 1992. "Understanding the Gender Gap: An Economic History of American Women," OUP Catalogue, Oxford University Press, number 9780195072709.
  2. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, October.
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