Unexplained Gaps and Oaxaca-Blinder Decompositions

Todd E. Elder, John H. Goddeeris and Steven J. Haider ()

No 600, CEPR Discussion Papers from Centre for Economic Policy Research, Research School of Social Sciences, 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: J24 J31 J15 J16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-lab
Date: 2009-02

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Working Paper: Unexplained Gaps and Oaxaca-Blinder Decompositions (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:auu:dpaper:600

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