The Social Cost of Labour

Raaj K. Sah and Joseph E. Stiglitz

in Peasants versus City-Dwellers

Published in print February 2002 | ISBN: 9780199253579
Published online January 2005 | e-ISBN: 9780191601682 | DOI:
The Social Cost of Labour

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This chapter is somewhat unrelated to the rest of the book, since it does not deal with taxation policies but with the calculation of the shadow cost of labour (shadow wage) in less developed countries (LDCs). During the last two decades, there has been growing consensus on the usefulness as well as the limitations of social cost–benefit analysis for project and expenditure evaluation in developing economies, and on the general procedures for determining shadow prices for such analyses. The objective here is to illustrate how the models and approaches developed in the rest of the book can be used for purposes other than taxation analysis, rather than to present a comprehensive shadow price model. The model presented addresses the case of an open economy facing fixed international prices, in which the government cannot (or does not) set different prices in the rural and urban sectors, and in which tariffs are fixed.

Keywords: developing economies; labour costs; less developed countries (LDCs); models; shadow prices; shadow wage; social cost–benefit analysis

Chapter.  5423 words. 

Subjects: Economic Development and Growth

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