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Causal pitfalls in the decomposition of wage gaps

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abstract The decomposition of gender or ethnic wage gaps into explained and unexplained components (often with the aim to assess labor market discrimination) has been a major research agenda in empirical labor economics. This paper demonstrates that conventional decompositions, no matter whether linear or non-parametric, are equivalent to assuming a (probably too) simplistic model of mediation (aimed at assessing causal mechanisms) and may therefore lack causal interpretability. The reason is that decompositions typically control for post-birth variables that lie on the causal pathway from gender/ethnicity (which are determined at or even before birth) to wage but neglect potential endogeneity that may arise from this approach. Based on the newer literature on mediation analysis, we therefore provide more attractive identifying assumptions and discuss non-parametric identification based on reweighting.
   
type journal paper
   
keywords wage decomposition, causal mechanisms, mediation
   
language English
kind of paper journal article
date of appearance 10-7-2014
journal Journal of Business and Economic Statistics
publisher Taylor & Francis (Abingdon)
ISSN 0735-0015
ISSN (online) 1537-2707
DOI 10.1080/07350015.2014.937437
number of issue forthcoming
page(s) NA
review double-blind review
   
profile area SEPS - Quantitative Economic Methods
citation Huber, M. (2014). Causal pitfalls in the decomposition of wage gaps. Journal of Business and Economic Statistics(forthcoming), NA, DOI:10.1080/07350015.2014.937437.