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Cost-Benefit Analysis in a Situation of Unemployment: Calculating the Decline in Unemployment as a Result of the Realization of a Government Project

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  • Thijs Zuidema

Abstract

The subject of this article is the cost-benefit analysis (cba) of government projects in a situation of unemployment. In calculating the opportunity costs of a project, the costs of otherwise unemployed persons employed by the project are valued at a shadow wage below the market wage. An estimate of this shadow wage can be derived from an estimate of the decline in unemployment as a result of the project. To this end, we deduce a response function on the basis of UV-analysis (U=unemployment, V=vacancies) in this article. This response function was estimated for the Netherlands. The empirical results indicate that the probability of a decline in unemployment as a result of a unit increase in labor demand is rather high.

Suggested Citation

  • Thijs Zuidema, 1987. "Cost-Benefit Analysis in a Situation of Unemployment: Calculating the Decline in Unemployment as a Result of the Realization of a Government Project," Public Finance Review, , vol. 15(1), pages 105-115, January.
    • Handle: RePEc:sae:pubfin:v:15:y:1987:i:1:p:105-115
    DOI: 10.1177/109114218701500107
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    References listed on IDEAS

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    1. Johansson, Per-Olov, 1982. "Cost-benefit rules in general disequilibrium," Journal of Public Economics, Elsevier, vol. 18(1), pages 121-137, June.
    2. Stephen A. Marglin, 1963. "The Opportunity Costs of Public Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 77(2), pages 274-289.
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