The Leisure Bias in Cost-Benefit Analyses of Employment and Training Programs

Abstract

Although increases in earnings that result from Employment and Training (E&T) programs typically come at the cost of losses of leisure to participants, this is almost never taken into account in cost-benefit analyses of E&T programs. This paper develops a method for adjusting for this bias and illustrates how the method can be used to reassess findings from earlier E&T cost-benefit analyses. Results in the paper suggest that the bias from ignoring lost leisure is likely to be sizable unless the E&T program that is subject to cost-benefit analysis increases earnings mainly by raising wage rates or participant reservation wages are near zero. Ignoring the bias will favor E&T programs that emphasize increases in hours of work by focusing on job search or work requirements at the expense of programs that increase wage rates through investments in human capital.