Suppose you are surveying firms to learn how many data scientists they hired this year. You can decompose the difference in the average number of hires across the two surveys into three pieces. The first is the changes in the characteristics of respondents. For example, you might have more large firms this year. The second piece is the change in the effect associated with those characteristics across time. For example, small firms might hire more this year than before. The third piece is the interaction of the two forces.
Here's an example of a Kitagawa–Blinder–Oaxaca decomposition in Stata. First, I simulate the data and get it in the right shape for analysis:
. /* (1) Simulate Data */
. clear
. set seed 58347390
. set obs 4
Number of observations (_N) was 0, now 4.
. gen size = _n - 1
. label define size 0 "S" 1 "M" 2 "L" 3 "XL"
. lab val size size
. expand 25
(96 observations created)
. sort size
. gen id = _n
. gen ds_hires0 = rpoisson(3 + size*3)
. gen ds_hires1 = rpoisson(3 + size*3 + 2.5 + 1/(1 + size)^2)
. reshape long ds_hires, i(id size) j(survey)
(j = 0 1)
Data Wide -> Long
-----------------------------------------------------------------------------
Number of observations 100 -> 200
Number of variables 4 -> 4
j variable (2 values) -> survey
xij variables:
ds_hires0 ds_hires1 -> ds_hires
-----------------------------------------------------------------------------
. list in 1/4, noobs clean
id size survey ds_hires
1 S 0 2
1 S 1 6
2 S 0 3
2 S 1 4
There are 100 firms, each surveyed twice, for a total of 200 observations. Next, I fit the model:
. /* (2) Ground Truth Regression */
. regress ds_hires i.size##i.survey, vce(cluster id)
Linear regression Number of obs = 200
F(7, 99) = 66.96
Prob > F = 0.0000
R-squared = 0.6653
Root MSE = 2.7933
(Std. err. adjusted for 100 clusters in id)
------------------------------------------------------------------------------
| Robust
ds_hires | Coefficient std. err. t P>|t| [95% conf. interval]
-------------+----------------------------------------------------------------
size |
M | 2.44 .5189928 4.70 0.000 1.410206 3.469794
L | 5.88 .6295966 9.34 0.000 4.630744 7.129256
XL | 8.92 .6819116 13.08 0.000 7.56694 10.27306
|
1.survey | 3.72 .6166937 6.03 0.000 2.496346 4.943654
|
size#survey |
M#1 | .24 .9873697 0.24 0.808 -1.719156 2.199156
L#1 | -1.16 .9432946 -1.23 0.222 -3.031701 .7117011
XL#1 | .48 1.171307 0.41 0.683 -1.844128 2.804128
|
_cons | 3.12 .3535934 8.82 0.000 2.418394 3.821606
------------------------------------------------------------------------------
The coefficient on the survey dummy tells us that a small firm hired 3.72 additional data scientists. Here I clustered the standard errors to reflect that I surveys each firm twice.
Now I drop some S and M firms from survey 0, and some L and XL firms from survey 1, leaving me with an unbalanced panel (61 firms in both surveys, 25 in the first only, and 14 in the second only). Now I fit the same model as above:
. /* (3) Unbalance the panel at random */
. gen missing = cond( ///
> survey == 0 & (inlist(size,"S":size,"M":size) & runiform() > .75) | ///
> survey == 1 & (inlist(size,"L":size,"XL":size) & runiform() > .5) ///
> ,1,0)
. regress ds_hires ib0.size##i.survey if !missing, vce(cluster id)
Linear regression Number of obs = 161
F(7, 99) = 52.08
Prob > F = 0.0000
R-squared = 0.6335
Root MSE = 2.8216
(Std. err. adjusted for 100 clusters in id)
------------------------------------------------------------------------------
| Robust
ds_hires | Coefficient std. err. t P>|t| [95% conf. interval]
-------------+----------------------------------------------------------------
size |
M | 2.049536 .5910518 3.47 0.001 .8767606 3.222311
L | 5.470588 .6543468 8.36 0.000 4.172222 6.768954
XL | 8.510588 .7052633 12.07 0.000 7.111193 9.909984
|
1.survey | 3.310588 .5859948 5.65 0.000 2.147847 4.473329
|
size#survey |
M#1 | .6304644 1.043286 0.60 0.547 -1.439642 2.700571
L#1 | -.2105882 .914476 -0.23 0.818 -2.025107 1.603931
XL#1 | 1.516078 1.459585 1.04 0.301 -1.380054 4.412211
|
_cons | 3.529412 .3929032 8.98 0.000 2.749807 4.309017
------------------------------------------------------------------------------
. margins, over(survey) post
Predictive margins Number of obs = 161
Model VCE: Robust
Expression: Linear prediction, predict()
Over: survey
------------------------------------------------------------------------------
| Delta-method
| Margin std. err. t P>|t| [95% conf. interval]
-------------+----------------------------------------------------------------
survey |
0 | 8.046512 .2601406 30.93 0.000 7.530336 8.562687
1 | 10.44 .3738436 27.93 0.000 9.698213 11.18179
------------------------------------------------------------------------------
. lincom _b[1.survey] - _b[0.survey]
( 1) - 0bn.survey + 1.survey = 0
------------------------------------------------------------------------------
| Coefficient Std. err. t P>|t| [95% conf. interval]
-------------+----------------------------------------------------------------
(1) | 2.393488 .4657015 5.14 0.000 1.469436 3.317541
------------------------------------------------------------------------------
This says that in survey 0, the average number of hires was 8. The second survey has 10.4, so that's a change of 2.4.
Now I decompose this gap into three pieces:
. qui tab size, gen(d) // generate dummy variables fpr size
. // KOB decomposition from the viewpoint of the second survey
. oaxaca ds_hires d2 d3 d4 if !missing, by(survey) swap threefold(reverse) cluster(id)
Blinder-Oaxaca decomposition Number of obs = 161
1: survey = 1
2: survey = 0
(Std. err. adjusted for 100 clusters in id)
-------------------------------------------------------------------------------
| Robust
ds_hires | Coefficient std. err. z P>|z| [95% conf. interval]
--------------+----------------------------------------------------------------
Differential |
Prediction_1 | 10.44 .5584137 18.70 0.000 9.345529 11.53447
Prediction_2 | 8.046512 .4306298 18.69 0.000 7.202493 8.890531
Difference | 2.393488 .5297834 4.52 0.000 1.355132 3.431845
--------------+----------------------------------------------------------------
Decomposition |
Endowments | -1.435891 .3199881 -4.49 0.000 -2.063057 -.8087264
Coefficients | 3.79588 .4441424 8.55 0.000 2.925377 4.666383
Interaction | .0334996 .2089723 0.16 0.873 -.3760786 .4430777
-------------------------------------------------------------------------------
The first panel is the same as the numbers from the regression. The second panel gives the decomp. The change in firm size mix across surveys shrank the gap by -1.435891 DS. The effect of firm size changing drove DS up by 3.79588, and their interactions added .0334996 DS. Put together, that adds up to 2.393488 DS. The first two effects are statistically significant, while the third is not.
