The Social Cost of Labor, and Project Evaluation: A General Approach

53 Pages Posted: 18 Nov 2012

See all articles by Raaj Kumar Sah

Raaj Kumar Sah

University of Chicago

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 1985

Abstract

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.

Suggested Citation

Sah, Raaj Kumar and Stiglitz, Joseph E., The Social Cost of Labor, and Project Evaluation: A General Approach (March 1, 1985). Journal of Public Economics, Vol. 28, No. 2, pp. 135-163, November 1985; Yale University Economic Growth Center Discussion Paper No. 470. Available at SSRN: https://ssrn.com/abstract=2086941

Raaj Kumar Sah (Contact Author)

University of Chicago ( email )

Chicago, IL 60637
United States
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Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

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