Decomposition Methods in Economics

118 Pages Posted: 7 Jun 2010

See all articles by Nicole M. Fortin

Nicole M. Fortin

University of British Columbia (UBC) - Department of Economics

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics; National Bureau of Economic Research (NBER)

Sergio Firpo

Insper

Date Written: June 2010

Abstract

This chapter provides a comprehensive overview of decomposition methods that have been developed since the seminal work of Oaxaca and Blinder in the early 1970s. These methods are used to decompose the difference in a distributional statistic between two groups, or its change over time, into various explanatory factors. While the original work of Oaxaca and Blinder considered the case of the mean, our main focus is on other distributional statistics besides the mean such as quantiles, the Gini coefficient or the variance. We discuss the assumptions required for identifying the different elements of the decomposition, as well as various estimation methods proposed in the literature. We also illustrate how these methods work in practice by discussing existing applications and working through a set of empirical examples throughout the paper.

Suggested Citation

Fortin, Nicole M. and Lemieux, Thomas and Firpo, Sergio, Decomposition Methods in Economics (June 2010). NBER Working Paper No. w16045. Available at SSRN: https://ssrn.com/abstract=1620762

Nicole M. Fortin (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Department of Economics
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Canada
604-822-3222 (Phone)
604-822-5915 (Fax)

Thomas Lemieux

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States
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514-343-5831 (Fax)

Sergio Firpo

Insper ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

HOME PAGE: http://https://sites.google.com/site/sergiopfirpo/

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