Munich Personal RePEc Archive

Wage Discrimination: Direct vs. Reverse Regression Method

Kapsalis, Constantine (2020): Wage Discrimination: Direct vs. Reverse Regression Method.

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Abstract

Two methods of estimating wage discrimination have been employed so far in the literature: the direct regression method and the reverse regression method. What distinguishes the two methods is their assumption about the wage determination process: The direct regression method assumes that employees are paid according to their qualifications; by contrast, the reverse regression method assumes that wages are determined by the nature of the job and it is the qualifications of employees within that job classification that may vary. This paper develops a new measure of wage discrimination, referred to here as the combined method, which is based on combining the results of the two wage discrimination measures. Using randomly generated data, it can be demonstrated that the combined method will produce the correct estimate of wage discrimination, assuming that the two alternative wage determination processes outlined above are equally common in the labour market.

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