A Simple Solution to the Identification Problem in Detailed Wage Decompositions

Myeong-Su Yun ()

No 836, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Oaxaca and Ransom (1999) show that a detailed decomposition of the coefficients effect is destined to suffer from an identification problem since the detailed coefficients effect attributed to a dummy variable is not invariant to the choice of reference groups. It turns out that the identification problem in the decomposition equation is a disguised identification problem of constant and dummy variables in a regression equation. This paper proposes a simple and natural remedy for this problem by utilizing “normalized” regressions which enable us to identify the constant and estimates of each dummy variable. The identification problem is automatically resolved once we obtain “normalized” regression equations for two comparison groups.

Keywords: coefficients effect; characteristics effect; identification; invariance; detailed decomposition; normalized regression (search for similar items in EconPapers)
JEL-codes: C20 J70 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2003-07
New Economics Papers: this item is included in nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Published - published in: Economic Inquiry, 2005, 43 (4), 766-772

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