The social cost of labor and project evaluation:
A general approach
Raaj Kumar Sah and Joseph E. Stiglitz
Journal of Public Economics, Volume 28, Number 2, November 1985, pages 135-163.
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This paper presents a general framework for analyzing shadow wages in LDCs. We focus on (i) the differences between the domestic and international prices, (ii) the equilibrating mechanisms in the economy, (iii) the endogeneity of earnings in industry and agriculture, (iv) the consequences of industrial employment creation on agriculture, and (v) the nature of migration and unemployment.
We identify those reduced form relationships which are central in determining the shadow wage, and use them to obtain general formulae for the shadow wage. These formulae can be specialized to alternative technological, behavioral, and institutional settings. This yields many new results concerning the relationship between the shadow wage and the market wage. Also, earlier results on shadow wages are derived as special cases of our formulae.
Cost-benefit analysis, Part I, edited by Arnold C. Harberger and Glenn P. Jenkins. In: The international library of critical writings in economics, edited by Mark Blaug. Edward Elgar, Cheltenham, UK, 2002.
Previous working versions include:
“The social cost of labor, and project evaluation: A general approach.” National Bureau of Economic Research, Cambridge, MA. NBER working paper Series, Working paper number 1229. November 1983.