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Research article - Peer-reviewed, 2022

On the social opportunity cost of unemployment

Johansson, Per-Olov; Kristrom, Bengt;

Abstract

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.

Keywords

Cost-benefit analysis; unemployment; reservation wage; social opportunity cost; socioeconomic costs; adding-up problem

Published in

Journal of Economic Policy Reform

2022, volume: 25, number: 3, pages: 229-239
Publisher: ROUTLEDGE JOURNALS, TAYLOR AND FRANCIS LTD

Authors' information

Johansson, Per-Olov
Ctr Environm and Resource Econ CERE
Johansson, Per-Olov
Stockholm Sch Econ
Centre for Environmental and Resource Economics (CERE)
Swedish University of Agricultural Sciences, Department of Forest Economics

Sustainable Development Goals

SDG8 Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

UKÄ Subject classification

Economics

Publication Identifiers

DOI: https://doi.org/10.1080/17487870.2020.1785300

URI (permanent link to this page)

https://res.slu.se/id/publ/107036