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The Social Cost of Labor, and Project Evaluation: A General Approach

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  • Joseph E. Stiglitz
  • Raaj Kumar Sah

Abstract

This paper develops a general methodology for analyzing shadow wage (and other shadow prices). Our approach is to identify those reduced form relationships describing the economy which are central to the determination of the shadow wage, and use these to obtain simple formulae for the shadow wage. Among the aspects of the economy on which we focus are: (i) the difference between the domestic and international prices, (ii) the equilibrating mechanisms in the economy, (iii) the mechanisms which determine earnings of industrial and agricultural workers, (iv) the nature of migration, and (vi) the intertemporal trade-offs and the attitudes towards inequality. These aspects are modelled in a general manner, which can be specialized to a number of alternative hypotheses concerning technology, behavioral postulates, and institutional settings. Most earlier results on the shadow wages are derived as special cases of our formulae. In addition, we identify a number of new qualitative results concerning the relationship between the shadow wage and the market wage.

Suggested Citation

  • Joseph E. Stiglitz & Raaj Kumar Sah, 1983. "The Social Cost of Labor, and Project Evaluation: A General Approach," NBER Working Papers 1229, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1229
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    1. Jean-Pascal Benassy, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 503-523.
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    2. Fields,Gary S., 2005. "A guide to multisector labor market models," Social Protection and Labor Policy and Technical Notes 32547, The World Bank.
    3. Fields, Gary S., 2005. "A welfare economic analysis of labor market policies in the Harris-Todaro model," Journal of Development Economics, Elsevier, vol. 76(1), pages 127-146, February.
    4. Glenn P. Jenkins & Chun-Yan kuo & Arnold C. Harberger, 2020. "Analyse Couts-Avantages Pour Les Decisions D’Investissement Chapitre 12; L'opportunité Économique Coût Du Travail," Development Discussion Papers 2020-12, JDI Executive Programs.
    5. Lawrence F. Katz & Lawrence H. Summers, 1989. "Can Interindustry Wage Differentials Justify Strategic Trade Policy?," NBER Chapters, in: Trade Policies for International Competitiveness, pages 85-124, National Bureau of Economic Research, Inc.
    6. Fields, Gary S., 1997. "Wage floors and unemployment: A two-sector analysis," Labour Economics, Elsevier, vol. 4(1), pages 85-91, March.
    7. Chiara DEL BO & Massimo FLORIO & Carlo Vittorio FIORIO, 2009. "Shadow wages for the EU regions," Departmental Working Papers 2009-42, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    8. Harald Lang & Armin-D. Riess, 2019. "Shadow wages in cost-benefit rules for project and policy analyses: estimates for OECD countries," CREA Discussion Paper Series 19-05, Center for Research in Economic Analysis, University of Luxembourg.

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