How to measure differences between personal income distributions: Case study of Poland in the years 2000-2012.

Nowadays one can observe the rapid development of microeconomic methods useful in the context of studying the differences between groups of objects. A variety of techniques for inequality decomposition are becoming more popular. Based on the works of Oaxaca (1973) and Blinder (1973) many procedures that go far beyond simple comparison of average values have been proposed, for example decomposition of the variance or of the differences along the whole distributions. New techniques are useful in studying inequalities in income distributions for various group of people.

The objective of the study is to perform the decomposition of income inequalities between personal income distributions in Poland in 2000 and 2012. The empirical data have been collected within the Household Budget Survey (HBS) for Poland in 2000 and 2012.

In this paper techniques for the decomposition of differences in distributions were considered. The difference between the two distributions may be decomposed onto:

f²⁰¹²(y)-f²⁰⁰⁰(y)=[f^2000->2012(y)-f²⁰⁰⁰(y)]+[f²⁰¹²(y)-f^2000->2012(y)],

where f^2000->2012(y) is the counterfactual distribution, which can be constructed in various ways.

In order to extend the Oaxaca-Blinder decomposition procedure to different quantile points along the income distribution, we applied two decomposition techniques: the residual imputation approach (Juhn, Murphy and Pierce, 1993) and RIF-regression method (recentered influence function; Firpo, Fortin and Lemieux, 2009).

Using this methods allowed us to perform the aggregate and the detailed (path independent) decompositions. We evaluated influence of person’s characteristics on the differences in income distributions in 2000 and 2012. By decomposing the inequalities into the explained and unexplained components we obtained information about their causes.

References:

Blinder A. (1973): Wage Discrimination: Reduced Form and Structural Estimates. Journal of Human Resources, 8, 436-455.

Firpo S., Fortin N.M., Lemieux T. (2009): Unconditional Quantile Regressions. Econometrica, 77(3), 953-973.

Juhn Ch., Murphy K.M., Pierce B. (1993): Wage Inequality and the Rise in Returns to Skill. Journal of Political Economy, 101, 410-442.

Oaxaca R. (1973): Male-Female Wage Differentials in Urban Labor Markets. International Economic Review, 14, 693-709.