Selection Bias and the Decomposition of Wage Differentials
The major contribution of this paper is finding a new and general approach to decomposing log-wage differentials when selection effects are present. We divide the observed log-wage differentials between two groups into 1) differentials in predicted log-wages computed using observed individual characteristics and consistent coefficients while assuming both groups' stochastic component (unobserved individual characteristics) of log-wages to have the same mean zero, and 2) differentials caused by differences in unobserved individual characteristics (selection effects). We compute the average of the selection effects by taking sample average of the residuals of log-wages (observed log-wages minus predicted log-wages) without relying on the analytical formula(e) for computing the selection effects. Blinder-Oaxaca type decomposition can be applied for the differentials in predicted log-wages in order to find the effects of differences in observed individual characteristics and the effects of differences in coefficients. We call this approach a ``generalized selection bias (GSB) approach.'' Our approach can be implemented with any kind estimation method as long as we can obtain consistent coefficients for the log-wage equation. We illustrate our approach by applying it to the racial wage differentials among women using data from the current population survey.
|Date of creation:||11 Jul 2000|
|Date of revision:|
|Contact details of provider:|| Postal: New Jersey Hall - 75 Hamilton Street, New Brunswick, NJ 08901-1248|
Phone: (732) 932-7363
Fax: (732) 932-7416
Web page: http://economics.rutgers.edu/
More information through EDIRC
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.:
- Blundell, Richard William & Ham, John & Meghir, Costas, 1987.
"Unemployment and Female Labour Supply,"
CEPR Discussion Papers
149, C.E.P.R. Discussion Papers.
- Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, February.
- Rosen, Sherwin, 1987. "The theory of equalizing differences," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 12, pages 641-692 Elsevier.
When requesting a correction, please mention this item's handle: RePEc:rut:rutres:199911. 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: ()
If references are entirely missing, you can add them using this form.