According to cost-benefit analysis theory, the shadow wage rate (SWR) is the social opportunity cost of labour. After reviewing earlier theoretical and empirical literature, we define the SWR under four labour market conditions: fairly socially efficient (FSE), quasi-Keynesian unemployment (QKU), urban labour dualism (ULD) and rural labour dualism (RLD). We offer, for the first time to date, a shortcut empirical estimation of the shadow wages for the EU at the regional (NUTS2) level. Our estimated values are in the form of conversion factors, i.e coefficients that translate actual observed real wages into shadow wages, as required by the evaluation of public investment projects under the Structural Funds of the EU. Our results are obtained with an empirical strategy that is easy to implement with aggregate regional data, differently from traditional micro-data based approaches to the estimation of the SWR, that are costly, project specific, and often difficult to be applied because of lack of information. We find that the conversion factor for the shadow wage rate is approximately 0.99 in 63 FSE regions (mostly in regions with capital cities and in the old EU member states, where unemployment is low); 0.80 in 129 ULD regions, where there are both migration inflows and unemployment ; 0.54 in 52 QKU regions, where unemployment is high; and 0.62 in 22 RLD regions (mainly in Eastern European countries, where the share of rural employment and migration outflows are high). These findings point to a high variability of labour market regimes in the EU and have important implications for project evaluation.

“Shadow wages for the EU regions"

DEL BO, CHIARA;FIORIO, CARLO;
2011

Abstract

According to cost-benefit analysis theory, the shadow wage rate (SWR) is the social opportunity cost of labour. After reviewing earlier theoretical and empirical literature, we define the SWR under four labour market conditions: fairly socially efficient (FSE), quasi-Keynesian unemployment (QKU), urban labour dualism (ULD) and rural labour dualism (RLD). We offer, for the first time to date, a shortcut empirical estimation of the shadow wages for the EU at the regional (NUTS2) level. Our estimated values are in the form of conversion factors, i.e coefficients that translate actual observed real wages into shadow wages, as required by the evaluation of public investment projects under the Structural Funds of the EU. Our results are obtained with an empirical strategy that is easy to implement with aggregate regional data, differently from traditional micro-data based approaches to the estimation of the SWR, that are costly, project specific, and often difficult to be applied because of lack of information. We find that the conversion factor for the shadow wage rate is approximately 0.99 in 63 FSE regions (mostly in regions with capital cities and in the old EU member states, where unemployment is low); 0.80 in 129 ULD regions, where there are both migration inflows and unemployment ; 0.54 in 52 QKU regions, where unemployment is high; and 0.62 in 22 RLD regions (mainly in Eastern European countries, where the share of rural employment and migration outflows are high). These findings point to a high variability of labour market regimes in the EU and have important implications for project evaluation.
2011
DEL BO, Chiara; Fiorio, Carlo; Florio, M.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3796699
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