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Standard Errors for the Blinder-Oaxaca Decomposition

By Ben Jann


The decomposition technique introduced by Blinder (1973) and Oaxaca (1973) is widely used to study outcome differences between groups. For example, the technique is commonly applied to the analysis of the gender wage gap. However, despite the procedure's frequent use, very little attention has been paid to the issue of estimating the sampling variances of the decomposition components. We therefore suggest an approach that introduces consistent variance estimators for several variants of the decomposition. The accuracy of the new estimators under ideal conditions is illustrated with the results of a Monte Carlo simulation. As a second check, the estimators are compared to bootstrap results obtained using real data. In contrast to previously proposed statistics, the new method takes into account the extra variation imposed by stochastic regressors.

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  1. (1998). Calculation of approximate variances for wage decomposition differentials
  2. (1983). Labor Market Discrimination Against Hispanic and Black Men The Review of Economics and Statistics 65:570–579.

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