A Simple Solution to the Identification Problem in Detailed Wage Decompositions
Oaxaca and Ransom (1999) show that a detailed decomposition of the coefficients effect is destined to suffer from an identification problem since the detailed coefficients effect attributed to a dummy variable is not invariant to the choice of reference groups. It turns out that the identification problem in the decomposition equation is a disguised identification problem of constant and dummy variables in a regression equation. This paper proposes a simple and natural remedy for this problem by utilizing “normalized” regressions which enable us to identify the constant and estimates of each dummy variable. The identification problem is automatically resolved once we obtain “normalized” regression equations for two comparison groups.
|Date of creation:||Jul 2003|
|Date of revision:|
|Publication status:||published in: Economic Inquiry, 2005, 43 (4), 766-772|
|Contact details of provider:|| Postal: |
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org
|Order Information:|| Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany|
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kennedy, Peter, 1986. "Interpreting Dummy Variables," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 174-75, February.
- William C. Horrace & Ronald L. Oaxaca, 2001. "Inter-Industry Wage Differentials and the Gender Wage Gap: An Identification Problem," ILR Review, Cornell University, ILR School, vol. 54(3), pages 611-618, April.
- Edin, Per-Anders & Zetterberg, Johnny, 1992. "Interindustry Wage Differentials: Evidence from Sweden and a Comparison with the United States," American Economic Review, American Economic Association, vol. 82(5), pages 1341-49, December.
- Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-93, March.
- 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.
- Greene, William H & Seaks, Terry G, 1991. "The Restricted Least Squares Estimator: A Pedagogical Note," The Review of Economics and Statistics, MIT Press, vol. 73(3), pages 563-67, August.
- John Ham & Jan Svejnar & Katherine Terrell, 1998.
"Unemployment and the Social Safety Net During Transitions to a Market Economy: Evidence from the Czech and Slovak Republic,"
William Davidson Institute Working Papers Series
169, William Davidson Institute at the University of Michigan.
- Ham, John C & Svejnar, Jan & Terrell, Katherine, 1998. "Unemployment and the Social Safety Net during Transitions to a Market Economy: Evidence from the Czech and Slovak Republics," American Economic Review, American Economic Association, vol. 88(5), pages 1117-42, December.
- Radchenko, Stanislav I. & Yun, Myeong-Su, 2003. "A Bayesian approach to decomposing wage differentials," Economics Letters, Elsevier, vol. 78(3), pages 431-436, March.
- John P. Haisken-DeNew & Christoph M. Schmidt, .
"Inter-Industry and Inter-Region Differentials: Mechanics and Interpretation,"
9504, SELAPO Center for Human Resources.
- John P. Haisken-DeNew & Christoph M. Schmidt, 2000. "Interindustry and Interregion Differentials: Mechanics and Interpretation," The Review of Economics and Statistics, MIT Press, vol. 79(3), pages 516-521, August.
- William C. Horrace & Ronald L. Oaxaca, 2001. "Inter-industry wage differentials and the gender wage gap: An identification problem," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 54(3), pages 611-618, April.
- Ronald Oaxaca, 1971.
"Male-Female Wage Differentials in Urban Labor Markets,"
396, Princeton University, Department of Economics, Industrial Relations Section..
- 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.
- Ronald L. Oaxaca & Michael R. Ransom, 1999. "Identification in Detailed Wage Decompositions," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 154-157, February.
- F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp836. 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: (Mark Fallak)
If references are entirely missing, you can add them using this form.