oaxaca: Blinder-Oaxaca Decomposition in R

Marek Hlavac
Social Policy Institute, Bratislava, Slovakia

Abstract
This article introduces the R package oaxaca to perform the Blinder-Oaxaca decom-
position, a statistical method that decomposes the gap in mean outcomes across two
groups into a portion that is due to differences in group characteristics and a portion that
cannot be explained by such differences. Although this method has been most widely
used to study gender- and race-based discrimination in the labor market, Blinder-Oaxaca
decompositions can be applied to explain differences in any continuous outcome across
any two groups. The oaxaca package implements all the most commonly used variants of
the Blinder-Oaxaca decomposition for linear regression models, calculates bootstrapped
standard errors for its estimates, and allows users to visualize the decomposition results.

Keywords: Blinder-Oaxaca decomposition, linear regression models, R.

If you use the oaxaca package in your research, please do not forget to include a citation:

• Hlavac, Marek (2022). oaxaca: Blinder-Oaxaca Decomposition in R. R package version

0.1.5. https://CRAN.R-project.org/package=oaxaca

1. Introduction
In this article, I introduce the R package oaxaca to estimate Blinder-Oaxaca decompositions
for linear regression models. The Blinder-Oaxaca decomposition is a statistical method that
decomposes differences in mean outcomes across two groups into a part that is due to group
differences in the levels of explanatory variables and a part that is due to differential magni-
tudes of regression coefficients.
The Blinder-Oaxaca decomposition originated and has been widely used in the study of labor
market discrimination (Blinder 1973; Oaxaca 1973). Economists and sociologists have, for in-
stance, used it to decompose wage and earnings differences based on gender (e.g., Stanley and
Jarrell 1998; Weichselbaumer and Winter-Ebmer 2005) and race (e.g., Darity, Guilkey, and
Winfrey 1996; Kim 2010). Although Blinder-Oaxaca decompositions have been a mainstay of
empirical research on discrimination, they can be, in principle, applied to explain differences
in any continuous outcome across any two groups. Researchers have, for instance, used it to
examine the assimilation of immigrants (LaLonde and Topel 1992), school enrollment rates
(Borooah and Iyer 2006), health insurance coverage (Bustamante, Fang, Rizzo, and Ortega
2009), the prevalence of smoking (Bauer, Göhlmann, and Sinning 2007), or even local hunting
lease rates (Munn and Hussain 2010).
Several software implementations of the Blinder-Oaxaca decomposition are already available.
2 oaxaca: Blinder-Oaxaca Decomposition in R

These include modules oaxaca (Jann 2008) and decomp (Watson 2010) for Stata (Stata-
Corp 2017) that estimate the decomposition for linear regression models. In addition, Stata
modules fairlie (Jann 2006) and nldecompose (Sinning, Hahn, and Bauer 2008) implement
the decomposition for a large variety of non-linear models using methods proposed in Fairlie
(2005), Bauer and Sinning (2008) and Bauer and Sinning (2010). A SAS (SAS Institute 2017)
implementation of the Blinder-Oaxaca decomposition for non-linear models is also available
(Fairlie 2013).
The oaxaca package is the first Blinder-Oaxaca decomposition package for the R statistical
programming language (R Core Team 2017). It implements several types of the decomposition
for linear regression models, and obtains point estimates of all decomposition components
using the same estimation procedures as the Stata module oaxaca (Jann 2008). Standard
errors are calculated using a non-parametric bootstrapping approach (Efron 1979). Unlike
any other existing software implementation of the Blinder-Oaxaca decomposition, oaxaca
enables users to generate elegant bar graph visualizations of all decomposition results.
The package is available free of charge, and can be installed from the Comprehensive R Archive
Network (CRAN) (2017) in the usual way:

R> install.packages("oaxaca")

In the next section, I give a brief description of the Blinder-Oaxaca decomposition method.
I then provide an overview of the oaxaca package’s features in Section 3. In Section 4, I
showcase them on an empirical example that examines the wage gap between native and
foreign-born Hispanic workers in metropolitan Chicago. Section 5 concludes.

2. Blinder-Oaxaca decomposition
This section provides an overview of the Blinder-Oaxaca decomposition. It is by no means
intended to be exhaustive, and primarily aims to give readers an understanding of the estima-
tion procedures that the oaxaca package implements. Readers who are interested in a more
comprehensive and rigorous treatment of the statistical method can refer to the excellent
overview in Jann (2008), whose notation I follow with only a few minor adjustments.
The aim of the Blinder-Oaxaca decomposition is to explain how much of the difference in
mean outcomes across two groups is due to group differences in the levels of explanatory
variables, and how much is due to differences in the magnitude of regression coefficients
(Oaxaca 1973; Blinder 1973). I will label the two groups as Group A and Group B. The mean
outcome difference to be explained (∆Ȳ ) is simply the difference of the mean outcomes for
observations in Group A and Group B, denoted as ȲA and ȲB , respectively:

∆Ȳ = ȲA − ȲB (1)

2.1. Threefold decomposition

In the context of a linear regression, the mean outcome for Group G ∈ {A, B} can be expressed
′
as ȲG = X̄ G β̂ G , where X̄ G contains the mean values of explanatory variables and β̂ G are
the estimated regression coefficients. Hence, ∆Ȳ can be rewritten as:
 Marek Hlavac 3

′ ′
∆Ȳ = X̄ A β̂ A − X̄ B β̂ B (2)

This expression can, in turn, be written as the sum of the following three terms:

′
∆Ȳ = (X̄ A − X̄ B )′ β̂ B + X̄ B (β̂ A − β̂ B ) + (X̄ A − X̄ B )′ (β̂ A − β̂ B ) (3)
endowments coefficients interaction

Equation 3 is the threefold Blinder-Oaxaca decomposition of the mean outcome difference.

The endowments term represents the contribution of differences in explanatory variables
across groups, and the coefficients term is the part that is due to group differences in the
coefficients. Finally, the interaction term accounts for the fact that cross-group differences in
explanatory variables and coefficients can occur at the same time.
The threefold decomposition can also be estimated separately for each explanatory variable:

(X̄ A − X̄ B )′ β̂ B = (X̄1A − X̄1B )´ˆ1B + (X̄2A − X̄2B )´ˆ2B + . . . (4)

endowments variable 1 variable 2

X̄ B (β̂ A − β̂ B ) = X̄1B (´ˆ1A − ´ˆ1B ) + X̄2B (´ˆ2A − ´ˆ2B ) + . . .

′
(5)
coefficients variable 1 variable 2

(X̄ A − X̄ B )′ (β̂ A − β̂ B ) = (X̄1A − X̄1B )(´ˆ1A − ´ˆ1B ) + (X̄2A − X̄2B )(´ˆ2A − ´ˆ2B ) + . . . (6)
interaction variable 1 variable 2

2.2. Twofold decomposition

Alternatively, one can estimate a twofold Blinder-Oaxaca decomposition. The twofold ap-
proach decomposes the mean outcome difference with respect to a vector of reference coeffi-
cients β̂ R . In the research literature on labor market discrimination, the reference coefficient
vector has typically been interpreted to be non-discriminatory – in other words, as the set of
regression coefficients that would emerge in a world of no labor market discrimination.

′ ′
∆Ȳ = (X̄ A − X̄ B )′ β̂ R + X̄ A (β̂ A − β̂ R ) + X̄ B (β̂ R − β̂ B ) (7)
explained unexplained A unexplained B

unexplained

As Equation 7 shows, the twofold decomposition divides the difference in mean outcomes into
a portion that is explained by cross-group differences in the explanatory variables, and a part
that remains unexplained by these differences.
The unexplained portion of the mean outcome gap has often been attributed to discrimination,
but may also result from the influence of unobserved variables. It can be further decomposed
into two sub-components, labeled “unexplained A” and “unexplained B” above. If one inter-
prets the reference coefficient vector to be non-discriminatory, these sub-components measure
the part of the mean difference in outcomes that originates from discrimination in favor of
Group A and the part that comes from discrimination against Group B, respectively.
4 oaxaca: Blinder-Oaxaca Decomposition in R

Again, a detailed, variable-by-variable decomposition can also be estimated:

(X̄ A − X̄ B )′ β̂ R = (X̄1A − X̄1B )´ˆ1R + (X̄2A − X̄2B )´ˆ2R + . . . (8)

explained variable 1 variable 2

X̄ A (β̂ A − β̂ R ) = X̄1A (´ˆ1A − ´ˆ1R ) + X̄2A (´ˆ2A − ´ˆ2R ) + . . .

′
(9)
unexplained A variable 1 variable 2

X̄ B (β̂ R − β̂ B ) = X̄2B (´ˆ2R − ´ˆ2B ) + X̄2B (´ˆ2R − ´ˆ2B ) + . . .

′
(10)
unexplained B variable 1 variable 2

The choice of the reference coefficients is generally up to the researcher. In the literature
on labor market discrimination, it is often assumed that only one of the two groups faces
discrimination – for instance, that only women or members of ethnic minorities are discrimi-
nated against. In such cases, the reference coefficients will simply be the coefficients from a
regression on observations from one of the groups: either β̂ R = β̂ A or β̂ R = β̂ B .
Some researchers have instead used a weighted average of β̂ A and β̂ B as the set of reference
coefficients. Reimers (1983), for example, proposes giving equal weight to coefficients from
regressions on Group A and Group B observations:

β̂ R = 0.5β̂ A + 0.5β̂ B (11)

Cotton (1988) suggests weighting the coefficients by the proportion of observations in the
corresponding group:

nA nB
β̂ R = β̂ + β̂ (12)
nA + nB A nA + nB B
Other researchers still have advocated the use of coefficient estimates from a regression that
pools observations from both Groups A and B, and includes (Jann 2008) or does not include
(Neumark 1988) the group indicator variable as an additional regressor. The oaxaca package
estimates results for all of the aforementioned choices of β̂ R , and also enables users to specify
their own custom weights for β̂ A and β̂ B to construct a weighted average-based set of reference
coefficients.

2.3. Sensitivity to the choice of omitted baseline category

The results of Blinder-Oaxaca decompositions have been found to be sensitive to the re-
searcher’s choice of the omitted baseline category when categorical variables are included as
covariates (Oaxaca and Ransom 1999). Typically, categorical explanatory variables are in-
troduced as a set of indicator (“dummy”) variables on the right hand side. To avoid perfect
multicollinearity, one of the dummy variables is usually omitted, and represents the base-
line category. The coefficients on the remaining dummy variables are then interpreted as
deviations from this omitted baseline. A linear regression model that contains a categorical
explanatory variable may thus have the following general form:

Y = ´0 + ´1 D1 + ´2 D2 + ´3 D3 + · · · + ´k−1 Dk−1 + X ′ γ + ϵ (13)

 Marek Hlavac 5

where Di , such that i = 1, . . . , k − 1, are indicator variables that represent individual levels
of a categorical variable. Category k is the omitted baseline.
To ensure that the Blinder-Oaxaca decomposition results are invariant to the user’s choice of
the omitted baseline category, oaxaca implements a procedure proposed by Gardeazabal and
Ugidos (2004). More specifically, the package transforms the above regression model into:

Y = ´˜0 + ´˜1 D1 + ´˜2 D2 + ´˜3 D3 + · · · + ´˜k−1 Dk−1 + ´˜k Dk + X ′ γ + ϵ (14)

where the new regression coefficients on the indicator variables are calculated by adding or
subtracting an adjustment amount a to/from the original coefficients. The adjustment amount
a is simply the sum of the original dummy coefficients β divided by k, the total number of
categories:

k−1
´j
j=1
a= (15)
k
The adjustment amount is then added to the original intercept ´0 :

´˜0 = ´0 + a (16)

and subtracted from each of the other regression coefficients:

´˜i = ´i − a (17)

for i = 1, . . . , k. The adjusted coefficients (β̃), as well as the results of detailed variable-by-
variable Blinder-Oaxaca decompositions, will remain the same regardless of the researcher’s
choice of the omitted category k.

2.4. Estimation uncertainty

The oaxaca package provides a measure of the estimation uncertainty that accompanies each
of its decomposition estimates. In particular, it reports bootstrapped standard errors based
on a user-specified number (R) of sampling replicates (Efron 1979). The package uses the
following procedures to calculate standard errors:

1. R resamples are randomly sampled with replacement from the relevant set of observa-
tions.

2. Decomposition estimates are calculated for each of the R resamples from Step 1.

3. The bootstrapped standard error is the standard deviation of the R decomposition

estimates from Step 2.
6 oaxaca: Blinder-Oaxaca Decomposition in R

3. Overview of the oaxaca package

The oaxaca package consists of the main function oaxaca(), which performs the Blinder-
Oaxaca decompositions, as well as of a related plot() method that produces a bar graph
visualization of the decomposition results. In this section, I offer a brief overview of these
functions’ capabilities. A more detailed description of the arguments and output of both
functions can be obtained by typing ?oaxaca or ?plot.oaxaca into the R console.

3.1. Decomposition estimation: Main function oaxaca()

The main function oaxaca() performs both the threefold and the twofold variants of the
Blinder-Oaxaca decomposition using observations from the data frame provided in the data
argument. The linear regression model for the Blinder-Oaxaca decomposition is specified
through the formula argument. Users can pass on a multiple-part formula that specifies the
dependent variable (y), the explanatory variables (x1, x2, x3, etc.), as well as an indicator
variable (z) that indicates whether an observation belongs to Group A (when z equals FALSE
or 0) or Group B (when it equals TRUE or 1). These variables, along with the functional form
of the model, are passed on to the formula argument in an object of class "Formula" from
the Formula package (Zeileis and Croissant 2010).
Typically, the model formula takes the following form:

y ~ x1 + x2 + x3 + ... | z

If the regression model contains dummies that represent a categorical variable (d1, d2, d3,
etc.), these can be specified by adding another part to the formula:

y ~ x1 + x2 + x3 + ... | z | d1 + d2 + d3 + ...

When categorical variable dummies are specified, the oaxaca() function will automatically
adjust estimates to be invariant with respect to the user’s choice of the omitted baseline
category.
If the user does not include any other arguments, oaxaca() will estimate the Blinder-Oaxaca
decompositions – both threefold and twofold – based on Ordinary Least Squares regressions
(estimated via the standard lm() function), and will calculate standard errors based on 100
bootstrapping replicates. By default, oaxaca() estimates the twofold decomposition with
Group A coefficients, Group B coefficients, their equally weighted average (Reimers 1983), a
weighted average that reflects the number of observations in Groups A and B (Cotton 1988),
as well with pooled coefficients – both including and excluding the group indicator variable
(Neumark 1988; Jann 2008) – as the set of reference coefficients.
These defaults can, however, easily be changed. Users can use the argument group.weights
to specify additional relative weights of Group A and Group B coefficients in the estimation of
the twofold decomposition. They can also choose, via the R argument, how many bootstrap-
ping resamples should be drawn to calculate the standard errors. Last but not least, users can
use a different regression function (argument reg.fun) to estimate the regression coefficients
used in the decompositions. Note that, if a non-linear function such as glm() is chosen, the
decomposition will be based on the linear systematic component – usually associated with
the estimation of the corresponding latent variable – of the regression method.
 Marek Hlavac 7

The function oaxaca() returns an object of class "oaxaca", which can then be passed on to
the plot() method to obtain a bar graph visualization of the Blinder-Oaxaca decomposition
results. The object contains lists named threefold and twofold which contain the results
of the threefold and twofold decompositions, respectively. In addition, the object stores the
regression coefficients used in the decomposition (component beta), the number of observa-
tions in each group that were used in the analysis (n), the number of bootstrapping replicates
(R), the regression objects generated during the analysis (reg), as well as the mean values of
both the dependent variable (y) and the explanatory variables (x).

3.2. Visualization: Method plot()

The oaxaca package can produce easily customizable bar charts that visually summarize the
results of its Blinder-Oaxaca decompositions. All bar charts are generated using the ggplot2
package (Wickham 2009). To visualize the decomposition results, the user simply passes an
"oaxaca"-class object created by the main function oaxaca() to the plot() method.
Users can choose which of the estimated decompositions to visualize. The decomposition
argument determines whether a threefold or a twofold Blinder-Oaxaca decomposition will
be shown, while the type argument specifies whether the bar graph will contain an overall
decomposition or a detailed, variable-by-variable one. If the detailed decomposition type is
selected, component.left determines whether decomposition components or variable names
will be aligned along the left side of the graph. The argument weight allows the user to select
which of the twofold decompositions should be shown, and the unexplained.split argument
determines whether the unexplained components ought to be split into the two discrimination
subcomponents (“unexplained A” and “unexplained B”).
Users can, furthermore, choose which of the variables and decomposition components will be
shown (arguments variables and components), as well as their labels (variable.labels and
component.labels). Standard error bars that indicate confidence intervals can be toggled by
the ci argument, and the confidence level adjusted by ci.level. Several formatting options
are available. The bar graph’s title can be set using the title argument, and axes can be
labeled by xlab and ylab. Finally, users can change the colors of the bars by specifying the
bar.color argument.

4. Example: Wages of native and foreign-born workers

In this section, I use an empirical example to demonstrate the capabilities of the oaxaca
package. In particular, I use the Blinder-Oaxaca decomposition to explain the wage gap
between native and foreign-born Hispanic workers in metropolitan Chicago. I analyze data
from the chicago data frame, included in the oaxaca package:

R> data("chicago")

The chicago data frame contains information about the demographic characteristics and la-
bor market outcomes of 712 employed Hispanic workers in the Chicago metropolitan area. It
is a subset of the 2013 Current Population Survey (CPS) Outgoing Rotation Groups (ORG)
data set (Center for Economic and Policy Research 2014). These data have been used exten-
sively in labor economics research (e.g., Holzer and Hlavac 2014).
8 oaxaca: Blinder-Oaxaca Decomposition in R

I am interested in decomposing the wage gap between native and foreign-born workers. The
wage gap could be due to group differences in the level of wage determinants such as age,
gender or education. Alternatively, the gap could arise from a differential effect of these de-
terminants on native and immigrant workers’ wages. I call the oaxaca() function to estimate
the relative magnitudes of these channels’ influence:

R> results <- oaxaca(formula = real.wage ~ age + female + LTHS +

+ some.college + college + advanced.degree | foreign.born | LTHS +
+ some.college + college + advanced.degree, data = chicago, R = 1000)

As the formula argument indicates, the outcome variable in this decomposition is real.wage,
the worker’s real wage denominated in 2013 U.S. dollars. The values of the dependent vari-
able had been obtained by exponentiating the natural logarithm of the workers’ real wages
(contained in the provided ln.real.wage variable):

R> chicago$real.wage <- exp(chicago$ln.real.wage)

The linear regression model includes covariates that account for the workers’ age, gender and
education. LTHS (“less than high school”), some.college, college and advanced.degree are
indicator variables that denote the highest level of education an individual has achieved. A
high school education is the omitted baseline category. The variable foreign.born indicates
whether a worker was born outside of the United States. Group A consists of native workers,
and Group B of foreign-born ones. To make sure that the choice of the omitted baseline does
not affect the decomposition estimates, the formula argument also specifies that the cate-
gorical variables denoting the education level ought to be adjusted. Bootstrapped standard
errors are calculated based on 1,000 replicates.

R> results$n

$n.A
[1] 287

$n.B
[1] 379

$n.pooled
[1] 666

The n component of the resulting "oaxaca"-class object indicates that there are nA = 287
native and nB = 379 foreign-born workers in the analyzed sample. The pooled analysis
contains nA + nB = 666 observations.
 Marek Hlavac 9

R> results$y

$y.A
[1] 17.58282

$y.B
[1] 14.56725

$y.diff
[1] 3.015574

The y component of the resulting "oaxaca"-class object indicates that the mean real wage is
$17.58 for the natives (Group A) and $14.57 for foreign-born workers, leaving the difference
of approximately $3.02 to be explained by the Blinder-Oaxaca decomposition.

4.1. Threefold decomposition

First, I look at the results of the threefold Blinder-Oaxaca decomposition:

R> results$threefold$overall

coef(endowments) se(endowments) coef(coefficients) se(coefficients)

1.6165339 0.6565025 2.8333261 0.8936198

coef(interaction) se(interaction)
-1.4342857 0.7953771

The results of the threefold decomposition suggest that, of the $3.02 difference, approximately
$1.62 can be attributed to group differences in endowments (i.e., age, gender, education), $2.83
to differences in coefficients, and the remaining -$1.43 is accounted for by the interaction
of the two. Next, I examine the endowments and coefficients components of the threefold
decomposition variable by variable. This is most easily done by using the plot() method:

R> plot(results, components = c("endowments","coefficients"))

Figure 1 shows the estimation results for each variable, along with error bars that indicate
95% confidence intervals. In the endowments component, most variables appear to have a
statistically insignificant (or only marginally significant) influence, with the sole exception of
LTHS. It seems that a significant portion of the native-immigrant wage gap is driven by group
differences in the proportion of individuals with less than a high school education.

R> summary(results$reg$reg.pooled.2)$coefficients["LTHS",]

Estimate Std. Error t value Pr(>|t|)

-2.86539843 0.89467794 -3.20271499 0.00142703
10 oaxaca: Blinder-Oaxaca Decomposition in R

Endowments
(Intercept) l

age l

female l

LTHS l

some.college l

college l

advanced.degree l

(Base) l

Coefficients
(Intercept) l

age l

female l

LTHS l

some.college l

college l

advanced.degree l

(Base) l

−10 −5 0 5 10

Figure 1: The endowments and coefficients components of a threefold Blinder-Oaxaca decom-

position of the native vs. immigrant wage gap.
 Marek Hlavac 11

R> results$x$x.mean.diff["LTHS"]

LTHS
-0.2693959

Individuals with less human capital tend to earn less, as can be seen from the pooled regression
coefficient on LTHS reported above. Furthermore, the value of x.mean.diff shows that a
greater proportion of foreign-born Hispanic workers have not attained a high school education.
The difference in the educational composition of native and immigrant worker groups thus
accounts for some portion of the natives’ higher wages.
Similarly, most variables are either insignificant or exhibit only marginal statistical significance
in the coefficients component. The only variable which achieves clear statistical significance
is age.

R> results$beta$beta.diff["age"]

age
0.1860063

As the difference in the age coefficients between natives and immigrants shows, the wage
payoff of an additional year of age is greater for U.S.-born Hispanic workers by almost 19
cents. As Figure 1 makes clear, differences in the regression coefficients on age account for
the decisive portion of the wage gap.

4.2. Twofold decomposition

Next, I look at the results of the twofold Blinder-Oaxaca decomposition. In the output
below, the weight column indicates the relative weights of coefficients from a regression on
observations from Groups A and B, respectively, in the reference coefficient vector β̂ R . The
two negative weights indicate that the reference coefficients come from pooled regressions
either without (-1) or with (-2) the group indicator variable included as a covariate.

R> results$twofold$overall

group.weight coef(explained) se(explained) coef(unexplained) se(unexplained)

[1,] 0.0000000 1.6165339 0.6565025 1.399040 0.9415643
[2,] 1.0000000 0.1822482 0.7126499 2.833326 0.8936198
[3,] 0.5000000 0.8993911 0.5579216 2.116183 0.8272809
[4,] 0.4309309 0.9984559 0.5653354 2.017118 0.8254298
[5,] -1.0000000 1.3557222 0.5059496 1.659852 0.6589794
[6,] -2.0000000 0.9525717 0.5220180 2.063003 0.8269841
coef(unexplained A) se(unexplained A) coef(unexplained B) se(unexplained B)
[1,] 1.399040e+00 9.415643e-01 0.0000000 0.0000000
[2,] 0.000000e+00 0.000000e+00 2.8333261 0.8936198
[3,] 6.995202e-01 4.707821e-01 1.4166630 0.4468099
[4,] 7.961506e-01 4.057492e-01 1.2209678 0.5085314
[5,] 9.445705e-01 3.763768e-01 0.7152816 0.2858236
[6,] 4.490852e-14 3.801248e-14 2.0630026 0.8269841
12 oaxaca: Blinder-Oaxaca Decomposition in R

For presentational ease, I focus my discussion on the Neumark (1988) decomposition, which
uses pooled regression coefficients (from a regression that does not include the group indi-
cator variable foreign.born) as the reference coefficient set. The Neumark decomposition
is denoted by -1 in the weights column. The results of the overall twofold decomposition
indicate that the $3.02 wage gap between native and foreign-born Hispanic workers can be
decomposed into $1.36 that can be explained by group differences in the explanatory variables
and $1.66 that is unexplained.
Let us assume that the unexplained component of the wage gap occurs due to labor mar-
ket discrimination, and that the pooled regression coefficients are non-discriminatory. The
Blinder-Oaxaca decomposition would then also indicate that $0.94 of the unexplained part
originates from discrimination in favor of native Hispanic workers (component "unexplained
A"), while $0.72 comes from discrimination against those who are born outside of the United
States (component "unexplained B"). The standard errors provide a sense of the uncertainty
that accompanies all of the point estimates.

R> plot(results, decomposition = "twofold", group.weight = -1)

Figure 2 provides a variable-by-variable twofold decomposition. The results are consistent

with the threefold composition. It appears that the wage gap is driven largely by the lower
proportion of workers with less than a high school education among the natives (in the
explained component) and by the native workers’ greater returns to age.
I can explore the unexplained component even further. In Figure 3, I examine three variables
from the decomposition – age, female and college – and visualize how much of the unex-
plained portion of the wage gap can be attributed to discrimination in favor of the natives,
and how much is due to discrimination against the immigrants.

R> plot(results, decomposition = "twofold", weight = -1,

+ unexplained.split = TRUE, components = c("unexplained A",
+ "unexplained B"), component.labels = c("unexplained A" =
+ "In Favor of Natives", "unexplained B" = "Against the Foreign-Born"),
+ variables = c("age", "female", "college"), variable.labels = c("age" =
+ "Years of Age", "female" = "Female", "college" = "College Education"))

I use a variety of plot() method arguments to customize the formatting of the resulting
bar graph. Through the components and component.labels arguments, I choose to dis-
play only the two subparts – "unexplained A" (i.e., discrimination in favor of Group A)
and "unexplained B" (discrimination against Group B) – of the unexplained decomposi-
tion component, and attach appropriate labels to them. Similarly, I use the variables and
variable.labels arguments to select and label the variables I examine.
It appears that only the discrimination components for the age variable (labeled "Years of
Age" in the bar graph) achieve non-marginal statistical significance. The relative size of the
bars suggests that – if we assume that the pooled regression coefficients reflect a state of
non-discrimination – almost twice as much of the wage gap is explained by discrimination
against foreign-born workers as it is by discrimination in favor of native ones.
The comparison would be a little easier to make if the discrimination components bar charts
were presented side-by-side for each variable separately. This can be achieved by switching on
 Marek Hlavac 13

Explained
(Intercept) l

age l

female l

LTHS l

some.college l

college l

advanced.degree l

(Base) l

Unexplained
(Intercept) l

age l

female l

LTHS l

some.college l

college l

advanced.degree l

(Base) l

−10 −5 0 5 10

Figure 2: The explained and unexplained components of a twofold Blinder-Oaxaca decompo-

sition of the native vs. immigrant wage gap.
14 oaxaca: Blinder-Oaxaca Decomposition in R

In Favor of Natives

Years of Age l

Female l

College Education l

Against the Foreign−Born

Years of Age l

Female l

College Education l

0.0 2.5 5.0

Figure 3: The unexplained portion’s discrimination sub-components in a twofold Blinder-

Oaxaca decomposition of the native vs. immigrant wage gap.
 Marek Hlavac 15

the component.left argument in the plot() method. The resulting bar graph is presented
in Figure 4.

R> plot(results, decomposition = "twofold", weight = -1,

+ unexplained.split = TRUE, components = c("unexplained A",
+ "unexplained B"), component.labels = c("unexplained A" =
+ "In Favor of Natives", "unexplained B" = "Against the Foreign-Born"),
+ component.left = TRUE, variables = c("age","female","college"),
+ variable.labels = c("age" = "Years of Age", "female" = "Female",
+ "college" = "College Education"))

Years of Age

In Favor of Natives l

Against the Foreign−Born l

Female

In Favor of Natives l

Against the Foreign−Born l

College Education

In Favor of Natives l

Against the Foreign−Born l

0.0 2.5 5.0

Figure 4: The unexplained portion’s discrimination sub-components in a twofold Blinder-

Oaxaca decomposition of the native vs. immigrant wage gap. An alternative presentation.
16 oaxaca: Blinder-Oaxaca Decomposition in R

Specific numerical values of the point estimates of the unexplained discrimination components
can, of course, be obtained directly from the "oaxaca"-class object:

R> variables <- c("age", "female", "college")

R> columns <- c("group.weight", "coef(unexplained A)", "coef(unexplained B)")
R> results$twofold$variables[[5]][variables, columns]

group.weight coef(unexplained A) coef(unexplained B)

age -1 4.3191008 2.3980443
female -1 -0.8285489 -0.4832824
college -1 0.3777076 0.3428246

To summarize, I have used the Blinder-Oaxaca decomposition to examine the wage gap be-
tween native and foreign-born Hispanic workers in the Chicago metropolitan area. The results
of my analysis suggest that much of the gap can be explained by two facts:

• There are more workers with less than a high school education in the foreign-born group.
Workers with a lower stock of human capital tend to command lower wages in the labor
market. As a result, the relatively less-educated group of foreign-born Hispanic workers
will, on average, earn lower wages than their native counterparts.

• The returns to age are greater for native workers than for the immigrants. In other
words, even if the foreign-born workers had the same average age as the natives, the
native group would, on average, earn higher wages than immigrants. This result makes
some intuitive sense if we interpret age as potentially picking up the effect of labor
market experience. The higher returns to age among the natives may, for instance,
reflect the differential availability of more lucrative jobs with greater opportunities for
career growth.

5. Concluding remarks
In this article, I have introduced the oaxaca package for the R statistical programming lan-
guage. It is the first R package that allows researchers to estimate Blinder-Oaxaca decompo-
sitions, a statistical method that decomposes differences in mean outcomes across two groups
into a part that is due to group differences in the levels of explanatory variables and a part
that is due to differential magnitudes of regression coefficients.
oaxaca estimates threefold and twofold Blinder-Oaxaca decompositions for linear models,
and also provides estimates for a detailed, variable-by-variable decomposition. Each point
estimate is presented with a bootstrapped standard error that measures the corresponding
estimation uncertainty.
I have demonstrated the package’s capabilities through an empirical example that examines
the wage gap between native and foreign-born Hispanic workers in the Chicago metropolitan
area. In doing so, I have also showcased the oaxaca package’s unique visualization features
that allow users to graphically summarize the results of their decompositions.
 Marek Hlavac 17

Acknowledgments
I would like to thank Kai Gehring, Becca Goldstein, Jakub Kubajek, Olivier Monso and
Sophie Saint-Philippe for helpful comments and suggestions.

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Affiliation:
E-mail: [email protected]