Note that if in some sector marginal costs were to be

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Note that if, in some sector, marginal costs were to be lower (e.g., through a regula:onrequiring an upgrade to less pollu:ng and more efficient equipment, then the output effectwould move in the other direc:on.The Factor-Shi3 (or subs8tu8on) Effect: Regulated firms’ produc:on technologies may be moreor less labor intensive aDer complying with the regula:on (i.e., more/less labor is requiredrela:ve to capital per dollar of output). Environmental ac:vi:es may be more labor intensivethan conven:onal produc:on, meaning that the amount of labor per dollar of output will rise.However, ac:vi:es may, instead, be less labor intensive because cleaner opera:ons couldinvolve automa:on and less employment, for example.Benefit-Cost Analysis, Employment, and Program Evalua:on
Employment Effects and Welfare Measurements in a Benefit-Cost AnalysisAt full employmentA 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 employmentTransi:on costs should be included in benefit-cost analysis, in principleBut these are oDen difficult to es:mate and are generally not largeHowever, if there is structural unemployment then increases in employment are beneficialThe reserva:on wage – what it would take for the worker to forego household produc:on and leisure – is theopportunity cost.This reserva:on wage is generally lower than the wage rate but not zero.Benefit-Cost Analysis, Employment, and Program Evalua:on
The social cost of hiring unemployed workers Labor market with unemploymentWage at Pmis ar:ficially high, so manyworkers want to work, but quan:tydemanded is insufficient at Pm.Regula:on increases demand forworkers by the amount L.ShiD demand to D+L’Benefit-Cost Analysis, Employment, and Program Evalua:on
The social cost of hiring unemployed workers Alterna:ves for valuing opportunity costs(and therefore benefits of addedemployment):A: assume the opportunity cost are is zero.no loss (in the form of opportunity cost) toworkers from transi:oning from unemploymentto employment.assumes :me is valueless for unemployed worker,however the unemployed worker may beengaged in some produc:ve ac:vity (e.g.,childcare) or leisure.

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