Estimating Labor Market Discrimination with Selectivity Corrected Wage Equations: Methodological Considerations and an Illustration from Israel

CEPR Discussion Paper Series No. 1915

Posted: 27 Jan 1999

See all articles by Shoshana Neuman

Shoshana Neuman

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; Centre for Economic Policy Research (CEPR)

Ronald L. Oaxaca

University of Arizona - Department of Economics; IZA Institute of Labor Economics

Date Written: June 1998

Abstract

This paper presents a modified and improved methodology for the decomposition of wage differentials between two groups of workers into an endowment component and a discrimination component. The standard decomposition technique does not take into account different probabilities of entering the profession under discussion. To incorporate this type of segregation into the wage differential decompositions, two statistical methodologies are merged: the Oaxaca methodology and the Heckman selectivity bias correction procedure. Using information derived from the entrance equations, the decomposition procedure is then modified, in order to take into account the contribution of segregation to the endowments and the discrimination components. It appears that there is more than one way to do it. The proposed methodology is applied to the analysis of wages of professionals in the Israeli labor market. Comparisons are made between the two genders and between Westerners and Easterners. Our results show that discrimination plays a more important role in explaining gender wage differentials than in explaining ethnic wage gaps and that selectivity corrected decompositions are quite capable of yielding very different conclusions than those based on the standard decompositions.

JEL Classification: J15, J16, J24, J31, J44, J71

Suggested Citation

Neuman, Shoshana and Oaxaca, Ronald L., Estimating Labor Market Discrimination with Selectivity Corrected Wage Equations: Methodological Considerations and an Illustration from Israel (June 1998). CEPR Discussion Paper Series No. 1915. Available at SSRN: https://ssrn.com/abstract=137236

Shoshana Neuman (Contact Author)

Bar-Ilan University - Department of Economics ( email )

Ramat-Gan, 52900
Israel
+972 3 531 8393 (Phone)
+972 3 535 3180 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ronald L. Oaxaca

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States
520-621-4135 (Phone)
520-621-8450 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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