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Cost-Benefit Analysis for Investment Decisions: Chapter 12 (The Economic Opportunity Cost of Labor)

Author

Listed:
  • Glenn Jenkins

    (Queen's University, Canada and Eastern Mediterranean University, Cyprus)

  • Chun-Yan Kuo

    (Queen's University, Canada)

  • Arnold C. Harberger

    (University of California, Los Angeles, USA)

Abstract

The concept of economic opportunity cost is derived from the recognition that when resources are used for one project, opportunities to use these resources are sacrificed elsewhere. Typically when workers are hired by a project, they are giving up one set of market and non-market activities for an alternative set. The economic opportunity cost of labor (EOCL) is the value to the economy of the set of activities given up by the workers including the non-market costs (or benefits) associated with the change in employment. When determining the EOCL, it is important to remember that labor is not a homogeneous input. It is perhaps the most diverse factor of production in any economy. In this chapter we will examine how the EOCL is estimated in an economy that contains markets for many different types of labor occupations, with variations by region, by quality of employment opportunities (e.g., pleasant, unpleasant, permanent, temporary, etc.) that affect the EOCL used by a project.

Suggested Citation

  • Glenn Jenkins & Chun-Yan Kuo & Arnold C. Harberger, 2011. "Cost-Benefit Analysis for Investment Decisions: Chapter 12 (The Economic Opportunity Cost of Labor)," Development Discussion Papers 2011-12, JDI Executive Programs.
    • Handle: RePEc:qed:dpaper:205
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    References listed on IDEAS

    as
    1. Jenkins, Glenn P & Montmarquette, Claude, 1979. "Estimating the Private and Social Opportunity Cost of Displaced Workers," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 342-353, August.
    2. Robin W. Boadway & Frank R. Flatters, 1981. "The Efficiency Basis for Regional Employment Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 14(1), pages 58-77, February.
    3. Heady, Christopher John, 1981. "Shadow Wages and Induced Migration," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 108-121, March.
    4. Sah, Raaj Kumar & Stiglitz, Joseph E., 1985. "The social cost of labor and project evaluation: A general approach," Journal of Public Economics, Elsevier, vol. 28(2), pages 135-163, November.
    5. Hasan Ali Biçak & Glenn P. Jenkins & Chun-Yan Kuo & M Benjamin Mphahlele, 2004. "An Operational Guide to The Estimation Of The Economic Opportunity Cost Of Labour In South Africa," Development Discussion Papers 2004-08, JDI Executive Programs.
    6. Gupta, Manash Ranjan, 1988. "Migration, Welfare, Inequality and Shadow Wage," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 477-486, September.
    7. Bell, Clive, 1991. "Regional heterogeneity, migration, and shadow prices," Journal of Public Economics, Elsevier, vol. 46(1), pages 1-27, October.
    8. Glenn P. Jenkins & Chun-Yan Kuo, 1978. "On Measuring the Social Opportunity Cost of Permanent and Temporary Employment," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 220-239, May.
    9. Hasan Ali Bicak & Glenn P Jenkins & Chun‐Yan Kuo & M Benjamin Mphahlele, 2004. "An Operational Guide To The Estimation Of The Economic Opportunity Cost Of Labour In South Africa1," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 1057-1068, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    supply price of labor; labor externalities; temporary jobs; permanent jobs; migration; protected sector; open sector; quasi voluntary unemployment; unemployment insurance;
    All these keywords.

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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