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Decomposition Analysis for a Binary Choice Model

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  • Yun, Myeong-Su

    (Inha University)

Abstract

This paper introduces a new and simple decomposition method for a binary choice model that is equivalent to the Blinder-Oaxaca decomposition analysis for wage differentials. The decomposition method is first developed for a single probit model and later generalized to a simultaneous equations model. Using Taylor expansion, we approximate the differences in the probabilities of choosing option 1 over option 0 between two groups in order to find the effects ofthe differences in "each" individual characteristic and the differences in "each" coefficient. We implement this decomposition analysis studying the racial gap in female labor market participation rates. The racial gap of participation rates among women can be almost exclusively explained by the differences in the coefficients.

Suggested Citation

  • Yun, Myeong-Su, 2000. "Decomposition Analysis for a Binary Choice Model," IZA Discussion Papers 145, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp145
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    References listed on IDEAS

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    1. Goldin, Claudia, 1992. "Understanding the Gender Gap: An Economic History of American Women," OUP Catalogue, Oxford University Press, number 9780195072709.
    2. Becker, Gary S., 1971. "The Economics of Discrimination," University of Chicago Press Economics Books, University of Chicago Press, edition 2, number 9780226041162, December.
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    Cited by:

    1. Puhani, Patrick, 2001. "Wage Rigidities in Western Germany: Microeconometric Evidence from the 1990s," CEPR Discussion Papers 3009, C.E.P.R. Discussion Papers.
    2. Yun, Myeong-Su, 2004. "Decomposing differences in the first moment," Economics Letters, Elsevier, vol. 82(2), pages 275-280, February.
    3. Amarante, Verónica & Gómez, Marcela, 2016. "El proceso de formalización en el mercado laboral uruguayo," Estudios y Perspectivas – Oficina de la CEPAL en Montevideo 39859, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    4. Benhura, Miracle, 2007. "Determinants of South African Women’s Labour Force Participation, 1995–2004," IZA Discussion Papers 3119, Institute of Labor Economics (IZA).
    5. Francisco Rivera-Batiz & Myeong-Su Yun & Ira Gang, 2002. "Economic Strain, Ethnic Concentration and Attitudes Towards Foreigners in the European Union," Departmental Working Papers 200214, Rutgers University, Department of Economics.
    6. Antonella Biscione & Dorothée Boccanfuso & Raul Caruso & Annunziata Felice, 2022. "The innovation gender gap in transition countries," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 39(2), pages 493-516, July.
    7. Raul Caruso & Antonella Biscione & Dorothée Boccanfuso & Annunziata de Felice, 2020. "Blinder-Oaxaca Approach to Identify Innovation Differences in Transition Countries," Working Papers 1008, European Centre of Peace Science, Integration and Cooperation (CESPIC), Catholic University 'Our Lady of Good Counsel'.
    8. Colin Green & Gareth Leeves, 2003. "The Incidence and Consequence of Worker Displacement in Australia," Australian Economic Papers, Wiley Blackwell, vol. 42(3), pages 316-331, September.
    9. Bertranou, Fabio & Casanova, Luis & Sarabia, Marianela, 2013. "How, Why and in What Sectors Employment Informality Decreased in Argentina from 2003 to 2012," MPRA Paper 47467, University Library of Munich, Germany.
    10. Patrizia Luongo, 2010. "Inequality of Opportunity in the Labour Market Entry of Graduates in Italy," SERIES 0030, Dipartimento di Economia e Finanza - Università degli Studi di Bari "Aldo Moro", revised May 2010.
    11. Pylypchuk, Yuriy & Selden, Thomas M., 2008. "A discrete choice decomposition analysis of racial and ethnic differences in children's health insurance coverage," Journal of Health Economics, Elsevier, vol. 27(4), pages 1109-1128, July.
    12. Nor Amna A’liah Mohd Nor & Rusmawati Said, 2014. "Malaysia's Labour Force Participation in Rural and Urban Areas," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 4(10), pages 1461-1472, October.

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    More about this item

    Keywords

    Decomposition analysis; binary choice; probit; selection bias; maximum likelihood estimation; labor market participation;
    All these keywords.

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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