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An Empirical Estimate of the Labor Response Function for Benefit-Cost Analysis

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  • Vitaliano, Donald F.

Abstract

Since the seminal contribution of Haveman and Krutilla(1968), the subject of the potential drawdown from the pool of unemployed versus diversion of labor from existing employments consequent upon a public investment project has been largely neglected in the BCA literature. The advent of a new BLS series on job vacancies now permits direct estimation of the crucial unemployment-vacancies (U-V) relationship, as compared to the ad hoc sine function using the unemployment rate assumed by Haveman and Krutilla. The probability p of a worker being drawn from the pool of unemployed is recast as a function of the job vacancy rate (vacancies/labor force) and shows higher values than Haveman and Krutilla at comparable rates of unemployment. At the height of the 2008-09 Great Recession, about half of Stimulus induced jobs were drawn from the pool of unemployed.

Suggested Citation

  • Vitaliano, Donald F., 2012. "An Empirical Estimate of the Labor Response Function for Benefit-Cost Analysis," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 3(3), pages 1-12, August.
    • Handle: RePEc:cup:jbcoan:v:3:y:2012:i:03:p:1-12_00
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    References listed on IDEAS

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    1. Gadi Barlevy, 2011. "Evaluating the role of labor market mismatch in rising unemployment," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 35(Q III), pages 82-96.
    2. Haveman Robert H. & Farrow Scott, 2011. "Labor Expenditures and Benefit-Cost Accounting in Times of Unemployment," Journal of Benefit-Cost Analysis, De Gruyter, vol. 2(2), pages 1-9, April.
    3. Richard O. Zerbe Jr & Allen S. Bellas, 2006. "A Primer for Benefit–Cost Analysis," Books, Edward Elgar Publishing, number 3480.
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