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March 11, 2011 | Publications, Articles | By MG

Shadow Wages for the EU Regions

Chiara Del Bo, Carlo Fiorio and Massimo Florio. Fiscal Studies, Volume32, Special Issue on Cost‐Benefit Analysis, 109-143

“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, a short‐cut empirical estimation of the shadow wages for the European Union (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, which are costly, project specific and often difficult to apply because of lack of information.”

 
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