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Generalized Selection Bias and The Decomposition of Wage Differentials

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  • Yun, Myeong-Su

    () (Inha University)

Abstract

The major contribution of this paper is ending a new and flexible way to measure the effects of selection on log-wages. In this context, we offer a general approach to performing decomposition analysis when selection effects are present. We call the difference between unconditional and conditional expectations of the log-wages a generalized selection bias (GSB) when the two expectations are measured using the estimates from the joint estimation of the whole model (log-wages and selection equations) by the MLE method. The unconditional and conditional expectations are, respectively, the deterministic component of log-wages, and the deterministic component plus the conditional expectation of the stochastic component of log-wages, where the deterministic component is computed using the estimates from the joint estimation. That is, the GSB is the expectation of the residuals estimated from the joint estimation. It is appropriate to apply the Blinder-Oaxaca decomposition method to the wage differentials adjusted for the GSB. The GSB approach to decomposition analysis is not only easy to implement and flexible enough to apply to virtually any kind of selection issue, but also efficient because it uses full information. We illustrate the GSB approach by applying it to the racial wage differentials among women using data from the Current Population Survey. We discuss the possibility of using semi-parametric or Bayesian sampling method for the joint estimation and related modifications of decomposition analysis.

Suggested Citation

  • Yun, Myeong-Su, 1999. "Generalized Selection Bias and The Decomposition of Wage Differentials," IZA Discussion Papers 69, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp69
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    Cited by:

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    2. J. Ignacio Garcia‐Perez & Juan F. Jimeno, 2007. "Public Sector Wage Gaps In Spanish Regions," Manchester School, University of Manchester, vol. 75(4), pages 501-531, July.
    3. Lamia Kandil, 2015. "Glass ceiling and belief flipping : theory and evidence from Egypt," Sciences Po publications 2015-02, Sciences Po.
    4. Lamia E. Kandil, 2015. "Disentangling qualitative and quantitative central bank influence," Documents de Travail de l'OFCE 2015-02, Observatoire Francais des Conjonctures Economiques (OFCE).
    5. Fernanda Rivas & Máximo Rossi, 2000. "Discriminación salarial en Uruguay (1991-1997)," Documentos de Trabajo (working papers) 0700, Department of Economics - dECON.
    6. Tilahun Temesgen, 2006. "Decomposing Gender Wage Differentials in Urban Ethiopia: Evidence from Linked Employer-Employee (LEE) Manufacturing Survey Data," Global Economic Review, Taylor & Francis Journals, vol. 35(1), pages 43-66.
    7. Ying Yao & Makoto Tanaka, 2016. "Price offers of pharmaceutical procurement in China: evidence from Guangdong province," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(5), pages 563-575, June.

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    More about this item

    Keywords

    Bayesian sampling; semi-parametric; Heckman’s two-step method; discrimination; Decomposition analysis of wage differentials; generalized selection bias; maximum likelihood estimation;
    All these keywords.

    JEL classification:

    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models

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