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Measuring The Social Opportunity Cost of Labor In Mexico

Listed author(s):
  • Guillermo-Peon Sylvia B.

    (Benemerita Universidad Autonoma de Puebla)

  • Harberger Arnold C.

    (University of California - Los Angeles)

This paper reviews the theory underlying the concept of the social opportunity cost of labor (SOCL), as that concept is used in benefit-cost analysis and in applied welfare economics generally. It then presents in detail the procedures to be followed in estimating the SOCL in real-world cases. Important steps in data processing include calculating gross and net wages from data on “reported” wages. Further economic analysis involves taking account of migration patterns and of labor market duality. Estimates are made for 32 labor market areas in Mexico, covering 21 occupations for males and 19 for females.Our main results are a) that there are important differences between reported wages and the gross wages paid by employers, and also between both of these and the net wages received by workers, and b) that taking labor market duality into account leads to significant modifications of our SOCL estimates. More important, perhaps, than our specific estimates for Mexico, is the methodological framework that we use. This framework, based on the fundamental principles of applied welfare economics, can serve as a useful starting point for serious estimation of the SOCL for other countries.

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Article provided by De Gruyter in its journal Journal of Benefit-Cost Analysis.

Volume (Year): 3 (2012)
Issue (Month): 2 (May)
Pages: 1-41

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Handle: RePEc:bpj:jbcacn:v:3:y:2012:i:2:n:1
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  1. Edwards, Alejandra Cox, 1989. "Labor Supply Price, Market Wage, and the Social Opportunity Cost of Labor," Economic Development and Cultural Change, University of Chicago Press, vol. 38(1), pages 31-43, October.
  2. Harberger, Arnold C, 1971. "Three Basic Postulates for Applied Welfare Economics: An Interpretive Essay," Journal of Economic Literature, American Economic Association, vol. 9(3), pages 785-797, September.
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