Blinder–Oaxaca decomposition

The Kitagawa–Blinder–Oaxaca decomposition is a statistical method that explains a difference in the means of a dependent variable between two groups by decomposing the gap into that factor that is due to differences in the mean values of the self-employed grown-up variable within the groups, on the one hand, and multiple differences in the effects of the self-employed grownup variable, on the other hand. The method was made by sociologist & demographer Evelyn M. Kitagawa in 1955. Ronald Oaxaca provided this method in economics in his doctoral thesis at Princeton University together with eventually published in 1973. The decomposition technique also carries the develope of Alan Blinder who proposed a similar approach in the same year. Oaxaca's original research impeach was the wage differential between two different groups of workers, but his method has since been applied to numerous other topics.

Method

The coming after or as a a object that is caused or produced by something else of. three equations illustrate this decomposition. Estimate separate linear wage regressions for individuals i in groups A and B:

where Χ is a vector of explanatory variables such(a) as education, experience, industry, and occupation, β_A and β_B are vectors of coefficients and μ is an error term.

Let b_A and b_B be respectively the regression estimates of β_A and β_B. Then, since the average return of residuals in a linear regression is zero, we have:

The number one part of the last generation of 3 is the affect of between-group differences in the explanatory variables X, evaluated using the coefficients for multinational A. The second part is the differential not explained by these differences in observed characteristics X.