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Cost-Benefit Analysis for Investment Decisions: Chapter 12 (The Economic Opportunity Cost of Labor)

  • Glenn Jenkins

    (Queen's University, Canada and Eastern Mediterranean University, Cyprus)

  • Chun-Yan Kuo

    (Queen's University, Canada)

  • Arnold C. Harberger

    (University of California, Los Angeles, USA)

The 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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Paper provided by JDI Executive Programs in its series Development Discussion Papers with number 2011-12.

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Length: 43 pages
Date of creation: Aug 2011
Date of revision:
Handle: RePEc:qed:dpaper:205
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  1. Gupta, Manash Ranjan, 1988. "Migration, Welfare, Inequality and Shadow Wage," Oxford Economic Papers, Oxford University Press, vol. 40(3), pages 477-86, September.
  2. Glenn P. Jenkins & Chun-Yan Kuo, 1978. "On Measuring the Social Opportunity Cost of Permanent and Temporary Employment," Canadian Journal of Economics, Canadian Economics Association, vol. 11(2), pages 220-39, May.
  3. Robin Boadway & Frank Flatters, 1979. "The Efficiency Basis for Regional Employment Policy," Working Papers 341, Queen's University, Department of Economics.
  4. Hasan Ali Bicak & Glenn P Jenkins & Chun-Yan Kuo & M Benjamin Mphahlele, 2004. "An Operational Guide To The Estimation Of The Economic Opportunity Cost Of Labour In South Africa," South African Journal of Economics, Economic Society of South Africa, vol. 72(5), pages 1057-1068, December.
  5. Heady, Christopher John, 1981. "Shadow Wages and Induced Migration," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 108-21, March.
  6. Bell, Clive, 1991. "Regional heterogeneity, migration, and shadow prices," Journal of Public Economics, Elsevier, vol. 46(1), pages 1-27, October.
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