Unexplained Gaps and Oaxaca-Blinder Decompositions

Todd Elder, John Goddeeris and Steven Haider

No 600, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Economics, Australian National University

Abstract: We analyze four methods to measure unexplained gaps in mean outcomes: three decompositions based on the seminal work of Oaxaca (1973) and Blinder (1973) and an approach involving a seemingly naïve regression that includes a group indicator variable. Our analysis yields two principal findings. We first show that a commonlyused pooling decomposition systematically overstates the contribution of observable characteristics to mean outcome differences, therefore understating unexplained differences. We also show that the coefficient on a group indicator variable from an OLS regression is an attractive approach for obtaining a single measure of the unexplained gap. We then provide three empirical examples that explore the practical importance of our analytic results.

Keywords: decompositions; discrimination (search for similar items in EconPapers)
JEL-codes: J15 J16 J24 J31 (search for similar items in EconPapers)
Date: 2009-02
New Economics Papers: this item is included in nep-ecm and nep-lab
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Unexplained gaps and Oaxaca-Blinder decompositions (2010)
Working Paper: Unexplained Gaps and Oaxaca-Blinder Decompositions (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:auu:dpaper:600

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