Estimation of the Economic Opportunity Cost of Labour: An Operational Guide for Ghana

Abstract

The implementation of projects often affects employment through direct job creation, indirectly stimulating employment or augmenting labour supply. These changes in employment have significant benefits and costs to both labour and society. However, the estimation of job creation benefits is complicated because of the large diversities in labour input. We attempt to address this issue by using the supply price approach to develop an analytical framework based on sound microeconomic principles to assist project analysts to arrive at justifiable empirical estimates of the economic opportunity cost (K-l) for a wide range of labour types across a set of diverse situations and market conditions in Ghana. The paper adopts the relevant literature regarding the specifics of labour markets and the peculiarities of different labour types. Accordingly, the K-l will vary by skill, location, and labour market conditions that need to be incorporated into its estimation. In this analysis, the estimation has been carried out to quantify the K-l, the conversion factor, as well as the labour externalities corresponding to the two types of labour: skilled and unskilled. Similarly, these estimates refer to groups of labour according to areas of residence: rural and urban.