An Analysis of Gender and Ethnic Wage Differentials among Youth in Sri Lanka
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Methodology The Model The literature on decomposing wage gaps has its roots in Mincerian wage equations (Mincer 1974), where earnings are dependent on productive, income-generating characteristics that individuals possess such as schooling and experience. ln Yi = bXi + ui,
(9.1)
where Y is the wage variable and X is a vector including all productivityrelated characteristics for the ith individual. Blinder (1973) and Oaxaca (1973) showed that mean wage gaps between groups could be decomposed into the effects of differences in average endowments of observable human capital and other productive characteristics, termed the characteristics effect or explained component (first term on the right), and differing returns to those characteristics, termed the coefficients effect or unexplained component or discrimination (second term). The assumption behind the method used is that in the absence of discrimination, the estimated effects of individuals’ observed characteristics are identical for each group. lny m − lny f = b m( X m − X f ) + X f Δb.
(9.2)
The formulation in equation 9.2 assumes that in the absence of discrimination, the “true” wage structure is the male wage structure, bm. In other words, females would be paid as if they were males. The alternative assumption that the “true” wage structure is the female wage structure is given by lny m − lny f = b f ( X m − X f ) + X m Δb.
(9.3)
In this study, the basic Blinder-Oaxaca decomposition is used to examine gender and ethnic wage differentials. The original contributions of this study to the Sri Lankan literature examining gender and ethnic wage gaps include the use of nine years of labor force data, which when pooled yield relatively large sample sizes of ethnic minority employees, even when disaggregated by sector; the use of actual experience (tenure or experience with the same employer or firm) instead of potential experience; the incorporation of occupational structure using a measure of earnings from which between-occupation inequality has been eliminated, and the use of four alternative formulations of the discriminationfree wage structures (male, female, equally weighted, and coefficients