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Blinder–Oaxaca decomposition

From Wikipedia, the free encyclopedia

The Blinder–Oaxaca decomposition, also known as Kitagawa decomposition, is a statistical method that explains the difference in the means of a dependent variable between two groups by decomposing the gap into that part that is due to differences in the mean values of the independent variable within the groups, on the one hand, and group differences in the effects of the independent variable, on the other hand. The method was introduced by sociologist and demographer Evelyn M. Kitagawa in 1955.[1] Ronald Oaxaca introduced this method in economics in his doctoral thesis at Princeton University and eventually published in 1973.[2] The decomposition technique also carries the name of Alan Blinder who proposed a similar approach in the same year.[3] Oaxaca's original research question was the wage differential between two different groups of workers, but the method has since been applied to numerous other topics.[4]

A graph illustrating the decomposition.
Using Blinder-Oaxaca decomposition one can distinguish between "change of mean" contribution (purple) and "change of effect" contribution

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