Oaxaca-Blinder Decomposition

The Oaxaca-Blinder decomposition is a regression-based technique that splits the difference in a mean outcome between two groups — classically the average wage gap between men and women or between racial groups — into a part explained by differences in observable characteristics (endowments such as education and experience) and an unexplained part attributed to differences in how those characteristics are rewarded (the coefficients). Introduced independently by Ronald Oaxaca and Alan Blinder in 1973, it became the standard tool for studying wage discrimination and group disparities.