Working Paper: CEPR ID: DP2114
Authors: Daniel Cohen
Abstract: The paper computes lifetime welfare functions for French and American workers. For the vast majority of workers, we find that the lifetime discrepancy between the welfare of an employed and that of an unemplyed worker appear to quite similar in the two countries, corresponding to nine monthly wages in the US, and 13 monthly wages in France. From these and othervalues, we then calibrate standard parameters of equilibrium theories of unemployment such as hiring and firing costs and the quantitative incidence of unemployment benefit onto the equilibrium hiring rates. We find that the latter factor dominates the other. Because of the heterogeneity that we document on the labour market, we show, however, why reducing the level of French unemployment benefits to the level of American ones would dramatically reduce the welfare of the most vulnerable workers on the labour market.
Keywords: ranking; unemployment; duration; wage; earnings; inequality; labour market dynamics
JEL Codes: D31; J6; P52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unemployment benefits (J65) | Welfare differentials (I38) |
| Higher replacement ratio in France (H55) | Mitigation of welfare loss from lower exit rates from unemployment (J65) |
| Reducing French unemployment benefits to U.S. levels (J68) | Harm to welfare of vulnerable workers (J81) |
| Hiring and firing costs (J63) | Welfare differentials (I38) |
| Labor market dynamics (J29) | Employment outcomes (J68) |
| Heterogeneity in labor markets (J49) | Observed discrepancies in welfare (I38) |