From Zerbe and Bellas (page 117-118):
Unemployment
A common variation on the theme of market imperfections occurs when there is unemploymnet in an area ...
A common and incorrect practice is to attach zero value to the labor of unemployed individuals who are employed by a project. In fact, unemployed people may be engaged in other beneficial activities such as child care, home maintenance, training or job searching while not working in the labor market, so the value of their labor should not be counted as zero. It is similarly incorrect to use the wages paid to previously unemployed people as the cost of their labor. The cost of the labor used in a project is its opportunity cost. If people who were previously unemployed choose to work on a project, it must be because the wages paid by the project are greater than the value of their next best alternative. The excess, or the difference between the wage and the value of the next best alternative, is a transfer from the people financing the project to the people it will employ.
...
Under most circumstances, wages paid to people employed on a project should not be counted as benefits, although this practice is disturbingly widespread. As mentioned above, the opportunity cost of labor used on a project is the output that that labor would have generated elsewhere, either in paid work or in household production. Including wages paid to labor on a project as a benefit implies that that labor would have produced nothing otherwise and that the agency making the wage payments does not have standing. ...
A common variation on the theme of market imperfections occurs when there is unemploymnet in an area ...
A common and incorrect practice is to attach zero value to the labor of unemployed individuals who are employed by a project. In fact, unemployed people may be engaged in other beneficial activities such as child care, home maintenance, training or job searching while not working in the labor market, so the value of their labor should not be counted as zero. It is similarly incorrect to use the wages paid to previously unemployed people as the cost of their labor. The cost of the labor used in a project is its opportunity cost. If people who were previously unemployed choose to work on a project, it must be because the wages paid by the project are greater than the value of their next best alternative. The excess, or the difference between the wage and the value of the next best alternative, is a transfer from the people financing the project to the people it will employ.
...
Under most circumstances, wages paid to people employed on a project should not be counted as benefits, although this practice is disturbingly widespread. As mentioned above, the opportunity cost of labor used on a project is the output that that labor would have generated elsewhere, either in paid work or in household production. Including wages paid to labor on a project as a benefit implies that that labor would have produced nothing otherwise and that the agency making the wage payments does not have standing. ...
