This paper examines methods of decomposing a difference in levels between
groups for a dependent variable such as income. Applied to regression
equations, this technique estimates the contribution to the difference from
divergent characteristics and divergent rates of converting characteristics into
the dependent variable. The consequences of an "interaction" component
being present in the decomposition is examined. The paper, using data from
the 1960 Census, shows how ignoring the interaction term can influence
results.
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