Interpreting the decomposition of gender earnings gap

Abstract

In this paper we discuss a decomposition of the gender monthly earnings differential into three components: the first is due to differences in individual characteristics, the second is due to discrimination and the last to the differential in hours worked. The Oaxaca-Blinder hourly wage decomposition is perfectly integrated into the decomposition of the monthly earnings gap. In order to evaluate the effects of this components on the monthly earnings gap, we calculate counterfactual earnings gaps, estimating what would happen if various aspects relating to the two genders were equal (for example, educational level), and then we compare these with the empirical earnings gap. The aim of the counterfactual approach is to furnish measurements that are easy to interpret and understand, even for non-specialists. This decomposition is applied using Eu-Silc 2006 data set for Italy.