Cost-Benefit Analysis in a Situation of Unemployment: Calculating the Decline in Unemployment as a Result of the Realization of a Government Project

Thijs Zuidema

Public Finance Review, 1987, vol. 15, issue 1, 105-115

Abstract: The subject of this article is the cost-benefit analysis (cba) of government projects in a situation of unemployment. In calculating the opportunity costs of a project, the costs of otherwise unemployed persons employed by the project are valued at a shadow wage below the market wage. An estimate of this shadow wage can be derived from an estimate of the decline in unemployment as a result of the project. To this end, we deduce a response function on the basis of UV-analysis (U=unemployment, V=vacancies) in this article. This response function was estimated for the Netherlands. The empirical results indicate that the probability of a decline in unemployment as a result of a unit increase in labor demand is rather high.

Date: 1987
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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:15:y:1987:i:1:p:105-115

DOI: 10.1177/109114218701500107

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