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An Extension of the Blinder-Oaxaca Decomposition Technique to Logit and Probit Models

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  • Fairlie, Robert

Abstract

The Blinder-Oaxaca decomposition technique is widely used to identify and quantify the separate contributions of group differences in measurable characteristics, such as education, experience, marital status, and geographical differences to racial and gender gaps in outcomes especially wage, earnings and other labor market outcomes. The technique cannot be used directly, however, if the outcome is binary and the coefficients are from a logit or probit model. I describe a relatively simple method of performing a decomposition that uses estimates from a logit or probit model. Expanding on the original application of the technique in Fairlie (1999), I provide a more thorough discussion of how to apply the technique, an analysis of the sensitivity of the decomposition estimates to different parameters, and the calculation of standard errors. I also compare the estimates to Blinder-Oaxaca decomposition estimates and discuss an example of when the Blinder-Oaxaca technique may be problematic. Applicaiton to computer ownership and entrepreneurship are used to illustrate the technique.

Suggested Citation

  • Fairlie, Robert, 2014. "An Extension of the Blinder-Oaxaca Decomposition Technique to Logit and Probit Models," Santa Cruz Department of Economics, Working Paper Series qt7j86n5q3, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt7j86n5q3
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    References listed on IDEAS

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    1. F. L. Jones, 1983. "On Decomposing the Wage Gap: A Critical Comment on Blinder's Method," Journal of Human Resources, University of Wisconsin Press, vol. 18(1), pages 126-130.
    2. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
    3. Oaxaca, Ronald, 1973. "Male-Female Wage Differentials in Urban Labor Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 693-709, October.
    4. David Neumark, 1988. "Employers' Discriminatory Behavior and the Estimation of Wage Discrimination," Journal of Human Resources, University of Wisconsin Press, vol. 23(3), pages 279-295.
    5. repec:eee:labchp:v:1:y:1986:i:c:p:693-785 is not listed on IDEAS
    6. Alan S. Blinder, 1973. "Wage Discrimination: Reduced Form and Structural Estimates," Journal of Human Resources, University of Wisconsin Press, vol. 8(4), pages 436-455.
    7. Fairlie, Robert W, 1999. "The Absence of the African-American Owned Business: An Analysis of the Dynamics of Self-Employment," Journal of Labor Economics, University of Chicago Press, vol. 17(1), pages 80-108, January.
    8. Oaxaca, Ronald L. & Ransom, Michael R., 1994. "On discrimination and the decomposition of wage differentials," Journal of Econometrics, Elsevier, vol. 61(1), pages 5-21, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Social and Behavioral Sciences; decomposition; race; inequality; computer; ICT; entrepreneurship; labor; education;
    All these keywords.

    JEL classification:

    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • J7 - Labor and Demographic Economics - - Labor Discrimination

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