Decomposing Income Differentials Between Roma and Non-Roma in South East Europe

The paper decomposes average income differentials between Roma and non-Roma in South East Europe into the component that can be explained by group differences in income-related characteristics (characteristics effect), and the component which is due to differing returns to thesecharacteristics (coefficients or discrimination effect). The decomposition analysis is based on Blinder (1973) and Oaxaca (1973) and uses three weighting matrices, reflecting the different assumptions about income structures that would prevail in the absence of discrimination. Heckman (1979) estimators control for selectivity bias. Using microdata from the 2004 UNDP household survey on Roma minorities, the paper finds that a large share of the average income differential between Roma and non-Roma is explained by human capital differences. Nevertheless, significant labour market discrimination is found in Kosovo for all weight specifications and in Bulgaria and Serbia for two weight specifications.