On the standard errors of Oaxaca-type decompositions for inter-industry gender wage differentials

Horrace and Oaxaca (2001) treat the regressors in gender wage gap by industry measures as non-stochastic when computing the corresponding standard errors. However, the non-stochastic regressors assumption is thought to be inappropriate in modern econometrics. In this paper, we derive the correct standard errors for the measures proposed by Horrace and Oaxaca (2001). We then empirically apply the derived correct standard errors in regard to the March 1998 Current Population Survey data adopted in Horrace and Oaxaca (2001), as well as the Manpower Utilization Survey in the Taiwan area conducted by the Census Bureau over the years from 1978 to 2003. The empirical results suggest that the researchers would be better to use the correct standard errors derived in this paper, accompanied by the White correction, to arrive at a more accurate statistical inference.