Cost-Benefit Analysis for Investment Decisions: Chapter 12 (The Economic Opportunity Cost of Labor)
AbstractThe 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.
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Bibliographic InfoPaper provided by JDI Executive Programs in its series Development Discussion Papers with number 2011-12.
Length: 43 pages
Date of creation: Aug 2011
Date of revision:
supply price of labor; labor externalities; temporary jobs; permanent jobs; migration; protected sector; open sector; quasi voluntary unemployment; unemployment insurance;
Find related papers by JEL classification:
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
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