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Causal pitfalls in the decomposition of wage gaps

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  • Huber, Martin

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Abstract

The decomposition of gender or ethnic wage gaps into explained and unexplained components (often with the aim to assess labor market discrimination) has been a major research agenda in empirical labor economics. This paper demonstrates that conventional decompositions, no matter whether linear or non-parametric, are equivalent to assuming a (probably too) simplistic model of mediation (aimed at assessing causal mechanisms) and may therefore lack causal interpretability. The reason is that decompositions typically control for post-birth variables that lie on the causal pathway from gender/ ethnicity (which are determined at or even before birth) to wage but neglect potential endogeneity that may arise from this approach. Based on the newer literature on mediation analysis, we therefore provide more attractive identifying assumptions and discuss non-parametric identification based on reweighting.

Suggested Citation

  • Huber, Martin, 2014. "Causal pitfalls in the decomposition of wage gaps," Economics Working Paper Series 1405, University of St. Gallen, School of Economics and Political Science.
  • Handle: RePEc:usg:econwp:2014:05
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    Citations

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    Cited by:

    1. Boris Kaiser, 2016. "Decomposing differences in arithmetic means: a doubly robust estimation approach," Empirical Economics, Springer, vol. 50(3), pages 873-899, May.
    2. Sloczynski, Tymon, 2015. "Average Wage Gaps and Oaxaca–Blinder Decompositions," IZA Discussion Papers 9036, Institute for the Study of Labor (IZA).
    3. Martin Huber, 2016. "Disentangling policy effects into causal channels," IZA World of Labor, Institute for the Study of Labor (IZA), pages 259-259, May.
    4. repec:bla:revinw:v:63:y:2017:i:1:p:118-146 is not listed on IDEAS
    5. Nicolas Herault & Francisco Azpitarte, 2016. "Understanding Changes in the Distribution and Redistribution of Income: A Unifying Decomposition Framework," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(2), pages 266-282, June.
    6. Collischon, Matthias, 2016. "Personality, ability, marriage and the gender wage gap: Evidence from Germany," FAU Discussion Papers in Economics 08/2016, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    7. Brown, Martin & Henchoz, Caroline & Spycher, Thomas, 2017. "Culture and Financial Literacy," Working Papers on Finance 1703, University of St. Gallen, School of Finance.
    8. Peter Huber & Ulrike Huemer, 2015. "Gender Differences in Lifelong Learning: An Empirical Analysis of the Impact of Marriage and Children," LABOUR, CEIS, vol. 29(1), pages 32-51, March.

    More about this item

    Keywords

    Wage decomposition; causal mechanisms; mediation;

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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