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A Note on Variance Estimation for the Oaxaca Estimator of Average Treatment Effects

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  • Patrick M. Kline

Abstract

We derive the limiting distribution of the Oaxaca estimator of average treatment effects studied by Kline (2011). A consistent estimator of the asymptotic variance is proposed that makes use of standard regression routines. It is shown that ignoring uncertainty in group means will tend to lead to an overstatement of the asymptotic standard errors. Monte Carlo experiments examine the finite sample performance of competing approaches to inference.

Suggested Citation

  • Patrick M. Kline, 2014. "A Note on Variance Estimation for the Oaxaca Estimator of Average Treatment Effects," NBER Working Papers 19784, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19784
    Note: LS TWP
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    1. Alberto Abadie & Guido W. Imbens & Fanyin Zheng, 2011. "Robust Inference for Misspecified Models Conditional on Covariates," NBER Working Papers 17442, National Bureau of Economic Research, Inc.
    2. Fortin, Nicole & Lemieux, Thomas & Firpo, Sergio, 2011. "Decomposition Methods in Economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 1, pages 1-102, Elsevier.
    3. 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.
    4. Enrico Moretti, 2014. "Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 275-331.
    5. Joshua Angrist & Miikka Rokkanen, 2012. "Wanna Get Away? RD Identification Away from the Cutoff," NBER Working Papers 18662, National Bureau of Economic Research, Inc.
    6. Vaart,A. W. van der, 2000. "Asymptotic Statistics," Cambridge Books, Cambridge University Press, number 9780521784504.
    7. Matias Busso & Jesse Gregory & Patrick Kline, 2013. "Assessing the Incidence and Efficiency of a Prominent Place Based Policy," American Economic Review, American Economic Association, vol. 103(2), pages 897-947, April.
    8. Patrick Kline, 2011. "Oaxaca-Blinder as a Reweighting Estimator," American Economic Review, American Economic Association, vol. 101(3), pages 532-537, May.
    9. Jeffrey M. Wooldridge, 2002. "Inverse probability weighted M-estimators for sample selection, attrition, and stratification," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 1(2), pages 117-139, August.
    10. Chesher, Andrew, 1995. "A Mirror Image Invariance for M-Estimators," Econometrica, Econometric Society, vol. 63(1), pages 207-211, January.
    11. Wooldridge, Jeffrey M., 2007. "Inverse probability weighted estimation for general missing data problems," Journal of Econometrics, Elsevier, vol. 141(2), pages 1281-1301, December.
    12. Heckman, James J. & Robb, Richard Jr., 1985. "Alternative methods for evaluating the impact of interventions : An overview," Journal of Econometrics, Elsevier, vol. 30(1-2), pages 239-267.
    13. 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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    Cited by:

    1. Takuya Hasebe, 2016. "Estimating the variance of decomposition effects," Applied Economics, Taylor & Francis Journals, vol. 48(20), pages 1902-1913, April.
    2. Graham, Bryan S. & Pinto, Cristine Campos de Xavier, 2022. "Semiparametrically efficient estimation of the average linear regression function," Journal of Econometrics, Elsevier, vol. 226(1), pages 115-138.
    3. Antonio Cruz & Carol Newman & John Rand & Finn Tarp, 2017. "Learning by Exporting: The Case of Mozambican Manufacturing," Journal of African Economies, Centre for the Study of African Economies, vol. 26(1), pages 93-118.
    4. Carol Newman & John Page & John Rand & Abebe Shimeles & Måns Söderbom & Finn Tarp, 2018. "Linked in by foreign direct investment: The role of firm-level relationships in knowledge transfers in Africa and Asia," WIDER Working Paper Series wp-2018-161, World Institute for Development Economic Research (UNU-WIDER).
    5. Benjamin Bruns, 2019. "Changes in Workplace Heterogeneity and How They Widen the Gender Wage Gap," American Economic Journal: Applied Economics, American Economic Association, vol. 11(2), pages 74-113, April.
    6. Słoczyński, Tymon, 2012. "New Evidence on Linear Regression and Treatment Effect Heterogeneity," MPRA Paper 39524, University Library of Munich, Germany.
    7. Carol Newman & John Page & John Rand & Abebe Shimeles & Måns Söderbom & Finn Tarp, 2018. "Linked in by foreign direct investment: The role of firm-level relationships in knowledge transfers in Africa and Asia," WIDER Working Paper Series 161, World Institute for Development Economic Research (UNU-WIDER).
    8. Marco Percoco, 2018. "Wealth inequality, redistribution and local development: The case of land reform in Italy," Environment and Planning C, , vol. 36(2), pages 181-200, March.

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    More about this item

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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