The Blinder-­‐Oaxaca Decomposition Uses: “Decomposes” outcome variables into explained/unexplained variation. For example decomposes wages into explained variation (e.g. level of schooling) and unexplained variation (e.g. discrimination, new policies or structural changes). §
§
Example: Male/Female Wage Differentials W = wages; α = intercept; β = coefficient of years of schooling (S ); ε = error term; M = men; F = women. WF = ↵F + F SF + ✏F WM = ↵M + M SM + ✏M W̄F *We want to understand: W̄M
§ We want to look at wage differentials between men and women, so we construct a counterfactual equation (intercept & coefficient replaced with those from men’s equation). WF⇤ = ↵M +
M SF
*We want to understand: + ✏F W̄M
W̄F = W̄M
W̄F⇤ + W̄F⇤
W̄F
Difference due to education
Unexplained difference
§
The Blinder-­‐Oaxaca decomposition equation is a combination of: Characteristics effects (explained variation):W̄M
⇤
Coefficients effects (unexplained variation): W̄F
§
W̄M
W̄F =
Visual Examples: ⇥
M (S̄M
W̄F⇤ =
M (S̄M
W̄F = (↵M
⇤ ⇥
S̄F ) + (↵M
↵F ) + (
↵F ) + (
Total Difference
Characteristics Effects
M
Discrimination Effects
M
F )S̄F
S̄F ) ⇤
F )S̄F Stata Applications: As of 2010 an “oaxaca” command is available in Stata that computes the Blinder-­‐Oaxaca decomposition. This should come standard on new versions of Stata, but if you don’t have it you can download it from SSC (the makers of Stata). *“decompose” & “decomp” are older versions of the same command. Syntax: Relevant Sources for Further Reading: “Blinder-­‐Oaxaca Decomposition Technique." International Encyclopedia of the Social Sciences. 2008. Encyclopedia.com. <http://www.encyclopedia.com> “Explaining Differences between Groups: Oaxaca Decomposition.” Health Equity, Ch. 12. The World Bank. <http://siteresources.worldbank.org/INTPAH/Resources/Publications/459843-­‐
1195594469249/HealthEquityCh12.pdf> “A Stata implementation of the Blinder-­‐Oaxaca decomposition.” The Stata Journal. May 2008. ETH Zurich Sociology. <http://www.ssc.wisc.edu/~jmuniz/jann_oaxaca.pdf> “St: New version of -­‐oaxaca-­‐ available from SSC.” The Stata Listserve. Jan 2010. <http://www.stata.com/statalist/archive/2010-­‐01/msg00042.html>