On the social opportunity cost of unemployment

The handling of unemployment is a central issue in cost-benefit analysis. Typically, the shadow price of employing an unemployed is derived by considering a marginal change in the employment constraint faced by an unemployed or rather an underemployed. In contrast, in this paper, we consider the dis...

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Bibliographic Details
Published in:Journal of economic policy reform 2022-07, Vol.25 (3), p.229-239
Main Authors: Johansson, Per-Olov, Kriström, Bengt
Format: Article
Language:English
Subjects:
adding-up problem
Cost benefit analysis
Economics
Employment
Nationalekonomi
Recruitment
reservation wage
social opportunity cost
socioeconomic costs
Unemployed people
Unemployment
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Summary:The handling of unemployment is a central issue in cost-benefit analysis. Typically, the shadow price of employing an unemployed is derived by considering a marginal change in the employment constraint faced by an unemployed or rather an underemployed. In contrast, in this paper, we consider the discrete shift from unemployment to (full) employment. The result provides guidance how to estimate the social cost of recruiting otherwise unemployed to a project. It is shown that the social cost is overestimated by using the private reservation wage. The common practice of adding different cost items is shown to be flawed.
ISSN:1748-7870
1748-7889
1748-7889
DOI:10.1080/17487870.2020.1785300