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Benefit-Cost Analysis and Employment 1.Evaluating benefits from training programs 2.Including employment effects from a policy or project in a BCA
Social Surplus Change from an Induced Wage Increase
Social Surplus Change from an Induced Increase in Hours Worked
Social Surplus Change from Workfare
Employment Effects and Welfare Measurements in a Benefit-Cost Analysis • At full employment– A job is a cost. The person could have been employed elsewhere.– The opportunity cost is measured by the wage rate.• A regula=on may increase or decrease net employment
Principal studies on regulation and employment
Decomposition of the effect of regulation on net employment •The Demand Effect: higher production costs from complying with the regulation will raise market prices, reducing consumption (and production), thereby reducing demand for labor within the regulated industry. The “extent of this effect depends on the cost increase passed on to consumers as well as the demand elasticity of industry output.” •The Cost Effect•The Factor-Shift EffectMorgenstern, Richard D., William A. Pizer, and Jhih-Shyang Shih. (2002) “Jobs Versus the Environment: An Industry-Level Perspective.” Journal of Environmental Economics and Management, Vol. 43, no. 3, pp. 412-436.
Decomposition of the effect of regulation on net employment •The Demand Effect•The Cost Effect: Assuming that the capital/labor ratio in the production process is held fixed, as “production costs rise, more inputs, including labor, are used to produce the same amount of output.”