Decomposing the Change in the Wage Gap Between White and Black Men Over Time, 1980-2005: An Extension of the Blinder-Oaxaca Decomposition Method

Abstract

This article extends the Blinder—Oaxaca decomposition method to the decomposition of changes in the wage gap between white and black men over time. The previously implemented technique, in which the contributions of two decomposition components are estimated by subtracting those at time 0 from the corresponding ones at time 1, can yield an untenable conclusion about the extent to which the contributions of the coefficient and endowment effects account for changes in the wage gap over time. This article presents a modified version of Smith and Welch’s (1989) decomposition method through which the sources of the change over time are decomposed into five components. The extents to which the education, age, region, metro residence, and marital status variables contribute to the rising racial wage gap between white and black men from 1980 to 2005 are estimated using the five-component detailed decomposition method and are contrasted with the results of the old simple subtraction decomposition technique. In conclusion, this article shows that changes in the racial wage gap between 1980 and 2005 result from many contradicting forces and cannot be reduced to one explanation.

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