On discrimination and the decomposition of wage differentials

Abstract

In this paper we examine four alternative methods for estimating the extent of labor market discrimination. All of the methods involve the decomposition of gross (unadjusted) wage differentials into discrimination and productivity components. These methods can be expressed in a single generalized form and are shown to differ with respect to the implicity assumed nondiscriminatory, competitive wage structure. Equivalencies among the methods are shown to exist under certain restrictive conditions. These methods are applied to micro data from the U.S. Current Population Survey and from a specific U.S. firm.