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Shadow wages for the EU regions

Author

Listed:
  • Chiara DEL BO
  • Massimo FLORIO
  • Carlo Vittorio FIORIO

Abstract

The shadow wage is the social opportunity cost of labor. After reviewing earlier theoretical and empirical literature, we define four labor market conditions: fairly socially efficient (FSE), quasi-Keynesian unemployment (QKU), urban labor dualism (ULD) and rural labor dualism (RLD). We offer, for the first time to date, an empirical estimation of the shadow wages for the EU at regional (NUTS2) level. Our estimated values are in the form of conversion factors that translate actual observed real wages into shadow wages, as required by social cost-benefit analysis of investment projects under the Structural Funds of the EU. Our results are obtained with an empirical strategy that is easy to implement with aggregate data, differently from micro-data based approaches that are costly, project specific, and often difficult to be applied because of lack of data. We find that the conversion factor for the shadow wage rate is 0. 998 in 29 FSE regions (mostly capital cities); 0. 943 in 135 ULD regions (mostly in rich areas); 0. 8005 in 74 QKU regions, and just 0. 519 in 32 RLD regions. These findings point to high variability of labor markets in the EU and have important applications for project evaluation.

Suggested Citation

  • Chiara DEL BO & Massimo FLORIO & Carlo Vittorio FIORIO, 2009. "Shadow wages for the EU regions," Departmental Working Papers 2009-042, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2009-042
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    More about this item

    Keywords

    Shadow wage; project evaluation; EU regions;
    All these keywords.

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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