DP2114 Welfare Differentials Across French and US Labour Markets

Author(s): Daniel Cohen
Publication Date: March 1999
Keyword(s): Labour Market Dynamics, Ranking, Unemployment Duration, wage earnings inequality
JEL(s): D31, J6, P52
Programme Areas: International Macroeconomics, Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2114

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.