Chapter 7: Cost–Benefit Analysis Applied to Labour Market Programmes
Michele Campolieti and Morley Gunderson 1 Introduction The evaluation of labour market programmes has been a ‘growth industry’ in recent years.1 This has been especially the case with respect to government-supported training programmes for unemployed or disadvantaged workers, but also for programmes such as wage subsidies, vocational rehabilitation, and work requirements under welfare. This literature has also been a ‘growth industry’ in the application of econometric techniques in various areas: sample-selection bias correction procedures; instrumental variable procedures; propensity score and other matching techniques; difference-in-difference estimates; longitudinal or panel data analysis; and hazard estimates of duration analysis. As detailed subsequently, these procedures have generally been used to obtain causal estimates of the incremental impact or benefit of a particular labour market programme. While the estimates of such incremental benefits have involved sophisticated procedures, it generally stops there, without it being incorporated into a more a more full-blown cost–benefit evaluation. Cost–benefit evaluation as applied to labour market programmes has the same advantages as cost–benefit evaluation applied to other areas. As indicated subsequently, it facilitates comparisons across different programmes by evaluating them by a common metric – the dollar costs and benefits. It facilitates decisions as to whether programmes should be discontinued or contracted or expanded, depending upon whether they meet the cost– benefit test, or whether they can be justified on other grounds (for example, equity or distributional grounds). Cost–benefit analysis provides a template for ensuring or cataloguing that all costs and benefits are considered in an evaluation, and...
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