While a discussion of the details of this method is beyond the scope of this paper, two important aspects and limitations (that also show up in the standard Blinder-Oaxaca decomposition) should be mentioned: First, while the characteristics effect identified in the decomposition represents the part of the difference in union density that is due toobserved differences over time and region in the characteristics and attitudes of employees that form the explanatory variables, the residual effect not only represents the part due to different regression coefficients but captures also the proportion of the difference in density due to group differences in unmeasurable or unobserved factors.