Incorporating nonmarket time into benefit–cost analyses of social programs: An application to the self-sufficiency project

Abstract

Benefit–cost analysis is used extensively in the evaluation of social programs. Often, the success or failure of these programs is judged on the basis of whether the calculated net benefits to society are positive or negative. Almost all existing benefit–cost studies of social programs count entire increases in income accruing to participants in a social program as net benefits to society. However, economic theory implies that the conceptually appropriate measure of the impact of a government program on any group of individuals is the net change in their surplus (or economic rent), rather than the net change in their income. For example, if a social program causes increases in income by increasing work hours, then the lost nonmarket time that accompanies these increases has value that needs to be counted as a cost when assessing the merits of that program. In this paper, we develop a methodology for incorporating lost nonmarket time into benefit–cost analyses of social programs. We apply our methodology to the Self-Sufficiency Project (SSP), an experimental welfare-to-work program tested on a pilot basis in two provinces in Canada during the 1990s. We find that if losses in nonmarket time are ignored, SSP yields a substantial positive net benefit to society. However, if losses in nonmarket time are taken into account, the net societal benefits are greatly reduced, even becoming negative in certain instances. We conclude that future benefit–cost analyses of social programs must take effects on nonmarket time into account in order to give a more accurate picture of the net benefits of the program.