@techreport{NBERw8466,
title = "Accounting for the Black-White Wealth Gap: A Nonparametric Approach",
author = "Robert Barsky and John Bound and Kerwin Charles and Joseph Lupton",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "8466",
year = "2001",
month = "September",
doi = {10.3386/w8466},
URL = "http://www.nber.org/papers/w8466",
abstract = {This paper notes a potential problem in the method of Blinder and Oaxaca the most popular method in the literature for decomposing the mean difference between groups of a given variable into the portion attributable to differences in the distribution of some explanatory variables and differences in the conditional expectation functions. In its conventional application, the Blinder-Oaxaca method requires that a parametric assumption be made about the form of the conditional expectations function. We show that misspecification is likely to result in non-trivial errors in inference regarding the portion attributable to differences in the distribution of explanatory variables. A nonparametric alternative to the Blinder-Oaxaca method is proposed. Rather than specify an arbitrary functional form for the conditional expectations function, the method re-weights the empirical distribution of the outcome variable using weights that equalize the empirical distributions of the explanatory variable. Applying this method to the large black-white gap in net worth, we document a substantial difference in the estimated role of earnings differences between the two methods. Our estimates suggest that differences in earnings account for roughly two-thirds of the overall wealth gap.},
}