An Empirical Estimate of the Labor Response Function for Benefit-Cost Analysis

Donald Vitaliano

Journal of Benefit-Cost Analysis, 2012, vol. 3, issue 3, 1-12

Abstract: Since the seminal contribution of Haveman and Krutilla(1968), the subject of the potential drawdown from the pool of unemployed versus diversion of labor from existing employments consequent upon a public investment project has been largely neglected in the BCA literature. The advent of a new BLS series on job vacancies now permits direct estimation of the crucial unemployment-vacancies (U-V) relationship, as compared to the ad hoc sine function using the unemployment rate assumed by Haveman and Krutilla. The probability p of a worker being drawn from the pool of unemployed is recast as a function of the job vacancy rate (vacancies/labor force) and shows higher values than Haveman and Krutilla at comparable rates of unemployment. At the height of the 2008-09 Great Recession, about half of Stimulus induced jobs were drawn from the pool of unemployed.

Date: 2012
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