Application of labour mobility in estimating of shadow wage rates in project appraisal

One of the central concerns in cost benefit analysis is the adjustment of distortions in markets to provide a better guide to a more effective allocation of scarce resources. The objectives of this paper are to develop a model for the estimation of the shadow wage rate (SWR) for groups of occupations and to estimate the SWRs for the major groups of occupations in Australia. The estimation of the SWR is done using a novel approach that estimates the SWR entirely from published statistical sources. The main findings of the analysis indicated that estimated SWRs for all major groups of occupations are different from the corresponding market wage rates and that estimated SWRs of the groups are different. The results of the study demonstrate the importance of estimation of the SWR as a part of the appraisal process of investment projects, and the proposed approach is recommended as an integral part of project appraisal in different economies where labour markets are distorted