Ordinal Decomposition

David Kaplan and Qian Wu ()
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Qian Wu: Southwestern University of Finance and Economics, https://qianjoewu.github.io/

No 2404, Working Papers from Department of Economics, University of Missouri

Abstract: The famous Blinder-Oaxaca decomposition estimates the statistically "explained" proportion of a between-group difference in means, but ordinal variables have no mean. A common approach assigns cardinal values 1,2,3,... to the ordinal categories and runs the conventional OLS-based decomposition. Surprisingly, we show such results are numerically identical to a decomposition of the survival function when estimating the counterfactual using OLS-based distribution regression, even if the cardinalization is wrong. Still, reporting the counterfactual helps transparency and wide-sense replication, and to mitigate functional form misspecification, we describe and implement a nonparametric estimator. Empirically, we decompose U.S. rural-urban differences in mental health.

Keywords: Blinder-Oaxaca decomposition; counterfactual distribution; distribution regression; survival function (search for similar items in EconPapers)
JEL-codes: C25 I14 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-ecm
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