5.2 Employment Effects in Benefit-Cost Analysis.pdf - Bene\ufb01t-Cost Analysis INCLUDING EMPLOYMENT EFFECTS IN BENEFIT-COST ANALYSES Bene\ufb01t-Cost

5.2 Employment Effects in Benefit-Cost Analysis.pdf -...

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Benefit-Cost Analysis INCLUDING EMPLOYMENT EFFECTS IN BENEFIT-COST ANALYSES Benefit-Cost Analysis, Employment, and Program Evalua:on
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. Transi:on costs should be included in benefit-cost analysis, in principle But these are oDen difficult to es:mate and are generally not large Changes in employment from regula:ons Difficult to predict changes in any par:cular sector A priori, cannot generally know if net effects are posi:ve or nega:ve Benefit-Cost Analysis, Employment, and Program Evalua:on
Employment Effects and Welfare Measurements in a Benefit-Cost Analysis At full employment a job is a cost, with opportunity cost measured by the wage rate . A regula:on may increase or decrease net employment Benefit-Cost Analysis, Employment, and Program Evalua:on
DecomposiHon of the effect of regulaHon on net employment The Output Effect : regula:on changes marginal costs of produc:on. If a regula:on causes marginal costs to increase, it will place upward pressure on output prices, leading to a decrease in demand for output and a resul:ng decrease in produc:on. The output effect describes how, holding labor intensity constant, a decrease in produc:on causes a decrease in labor demand. Note that if, in some sector, marginal costs were to be lower (e.g., through a regula:on requiring an upgrade to less pollu:ng and more efficient equipment, then the output effect would move in the other direc:on. The Factor-Shi3 Effect… Source: Berman and Bui (2001) Benefit-Cost Analysis, Employment, and Program Evalua:on
DecomposiHon of the effect of regulaHon on net employment The Output Effect… regula:on changes marginal costs of produc:on. If a regula:on causes marginal costs to increase, it will place upward pressure on output prices, leading to a decrease in demand for output and a resul:ng decrease in produc:on. The output effect describes how, holding labor intensity constant, a decrease in produc:on causes a decrease in labor demand.

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