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An Oaxaca Decomposition for Nonlinear Models

Author

Listed:
  • Bazen, Stephen

    () (Aix-Marseille University)

  • Joutard, Xavier

    () (Aix-Marseille University)

  • Magdalou, Brice

    () (University of Montpellier 1)

Abstract

The widely used Oaxaca decomposition applies to linear models. Extending it to commonly used nonlinear models such as duration models is not straightforward. This paper shows that the original decomposition that uses a linear model can also be obtained by an application of the mean value theorem. By extension, this basis provides a means of obtaining a decomposition formula which applies to nonlinear models which are continuous functions. The detailed decomposition of the explained component is expressed in terms of what are usually referred to as marginal effects. Explicit formulae are provided for the decomposition of some nonlinear models commonly used in applied econometrics including binary choice, duration and Box-Cox models.

Suggested Citation

  • Bazen, Stephen & Joutard, Xavier & Magdalou, Brice, 2016. "An Oaxaca Decomposition for Nonlinear Models," IZA Discussion Papers 9909, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9909
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    References listed on IDEAS

    as
    1. Baker, G M & Trivedi, P K, 1985. "Estimation of Unemployment Duration from Grouped Data: A Comparative Study," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 153-174, April.
    2. Stephen Bazen & Xavier Joutard & Mouhamadou Niang, 2014. "The measurement of unemployment using completed durations: evidence on the gender gap in unemployment in France," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 12(4), pages 517-534, December.
    3. Wolff, François-Charles, 2012. "Decomposition of non-linear models using simulated residuals," Economics Letters, Elsevier, vol. 116(3), pages 346-348.
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    More about this item

    Keywords

    Oaxaca decomposition; nonlinear models; duration models; binary choice; Box‐Cox transformation;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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