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Causal pitfalls in the decomposition of wage gaps

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  • Huber, Martin
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.

Suggested Citation

  • Huber, Martin, 2014. "Causal pitfalls in the decomposition of wage gaps," Economics Working Paper Series 1405, University of St. Gallen, School of Economics and Political Science.
    • Handle: RePEc:usg:econwp:2014:05
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Wage decomposition; causal mechanisms; mediation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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