Welfare differentials across French and US labor markets $e_A general equilibrium interpretation

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 unemployed worker appear to be quite similar in the two countries, corresponding to 9 monthly wages in the US and 13 monthly wages in France. From these and other values, 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 labor 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 labor market.