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Shadow Wages for the EU Regions

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  • Chiara Del Bo
  • Carlo Fiorio
  • Massimo Florio

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.
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  • Chiara Del Bo & Carlo Fiorio & Massimo Florio, 2011. "Shadow Wages for the EU Regions," Fiscal Studies, Institute for Fiscal Studies, vol. 32(1), pages 109-143, March.
    • Handle: RePEc:ifs:fistud:v:32:y:2011:i::p:109-143
    DOI: j.1475-5890.2011.00129.x
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    8. Grimaldi, Raffaele & Beria, Paolo, 2013. "Open issues in the practice of cost benefit analysis of transport projects," MPRA Paper 53766, University Library of Munich, Germany.
    9. Santamaría, Marta & Azqueta, Diego, 2015. "Promoting biofuels use in Spain: A cost-benefit analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1415-1424.
    10. Morena Bruno & Michela Marchi & Nicolò Ermini & Valentina Niccolucci & Federico Maria Pulselli, 2023. "Life Cycle Assessment and Cost–Benefit Analysis as Combined Economic–Environmental Assessment Tools: Application to an Anaerobic Digestion Plant," Energies, MDPI, vol. 16(9), pages 1-19, April.
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    More about this item

    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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