Accounting for the Black-White Wealth Gap: A Nonparametric Approach / Robert Barsky, John Bound, Kerwin Charles, Joseph Lupton.

Format:

Book

Author/Creator:

Barsky, Robert.

Contributor:

National Bureau of Economic Research.

Bound, John.

Charles, Kerwin Kofi.

Lupton, Joseph.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8466.

NBER working paper series no. w8466

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Accounting for the Black-White Wealth Gap

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

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.

Notes:

Print version record

September 2001.