A Macrocounterfactual Analysis of Group Differences: An application to an analysis of the gender wage gap in Japan

This paper introduces a new method for a statistical simulation of macrosocietal counterfactual situations. In particular, this method is concerned with decomposing group differences in the mean of a variable into various within-group and between-group components with respect to group categories of intermediary variables. In modeling counterfactual situations, I juxtapose two different mechanisms, the mechanism of realizing the counterfactual state that deviates least from the existing state, and the mechanism of holding other irrelevant-to-counterfactual relations of variables unchanged, and demonstrate that despite the big difference in the mechanisms, the two counterfactual models generally yield highly consistent outcomes. As an illustrative example, the paper analyzes gender inequality in hourly wages in Japan and thereby demonstrates the usefulness of the new method for deriving policy implications.