Publications by PSE researchers

In this stated preferences study, we describe for the first time French citizens’ preferences for various epidemic control measures, to inform longer-term strategies and future epidemics. We used a discrete choice experiment in a representative sample of 908 adults in November 2020 (before vaccination was available) to quantify the trade-off they were willing to make between restrictions on the social, cultural, and economic life, school closing, targeted lockdown of high-incidence areas, constraints to directly protect vulnerable persons (e.g., self-isolation), and measures to overcome the risk of hospital overload. The estimation of mixed logit models with correlated random effects shows that some trade-offs exist to avoid overload of hospitals and intensive care units, at the expense of stricter control measures with the potential to reduce individuals’ welfare. The willingness to accept restrictions was shared to a large extent across subgroups according to age, gender, education, vulnerability to the COVID-19 epidemic, and other socio-demographic or economic variables. However, individuals who felt at greater risk from COVID-19, and individuals expressing high confidence in the governmental management of the health and economic crisis, more easily accepted all these restrictions. Finally, we compared the welfare impact of alternative strategies combining different epidemic control measures. Our results suggest that policies close to a targeted lockdown or with medically prescribed self-isolation were those satisfying the largest share of the population and achieving high gain in average welfare, while average welfare was maximized by the combination of all highly restrictive measures. This illustrates the difficulty in making preference-based decisions on restrictions.

Les conséquences économiques et environnementales des politiques françaises de transition énergétique doivent s’envisager dans le cadre d’une économie ouverte. Tout d’abord, le rythme des efforts et les modalités de la décarbonation de l’activité économique sont en partie dictés au niveau européen, comme dans le cas du marché de quotas d’émission pour les industries hautement émissives. Mais surtout, l’Accord de Paris inscrit l’effort français au sein d’une variété d’engagements nationaux de décarbonation, tant en termes d’ambition que d’instruments mis en œuvre pour y parvenir. Cette diversité des efforts et instruments au niveau international contribue à déterminer les effets économiques des choix faits en matière de politiques climatiques adoptées au niveau européen et français. Ce rapport propose un tour d’horizon synthétique de cette dimension internationale des politiques de transition énergétique. En dépit d’éléments communs, notamment leur objectif final de réduction de l’empreinte carbone de l’activité économique, les politiques climatiques des différents pays sont hétérogènes, qu’il s’agisse de leur ambition – à savoir le niveau de leurs engagements en termes de décarbonation – ou des politiques (prix, réglementations, subventions ou crédits d’impôt) mises en œuvre. Il est dès lors illusoire de tenter de réduire les effets de cette hétérogénéité à une métrique commune de l’effort de chaque pays, comme le serait un équivalent prix des mesures réglementaires ou incitatives en place dans les différents pays.

Using a general equilibrium heterogeneous agent model featuring health production, we quantify the contribution of health price in explaining cross-country differences in health expenditures and health status. Considering other country-specific explanatory factors, US health prices are estimated to be 33% higher than those of European countries. This price differential explains more than 60% of the difference in health expenditures and more than half of the difference in health status between Europe and the United States. Despite its large impact at the aggregate level, these price differences increase the lifetime cost of living of Americans by 2 percentage points.

We are developing a matching model that reproduces the impact of the sanitary restrictions induced by the Covid-19 crisis on French unemployment, taking into account its heterogenous impacts between various educational levels. We identify the size of the restrictions on sales for each labor market segment and the different use of short-time working program. Our results are obtained thanks to an original matching model integrating (i) time-varying microeconomic risks, (ii) and congestion externalities making unit costs of vacancy posting varying. Afterwards, (i) we evaluate the impact of the short-time working program on unemployment rates by diploma, (ii) we compare different scenarios of the lockdown (short but strict vs long but flexible) and (iii) we forecast the impact of a similar lockdown of March 2020 at the end of March 2021.

In this paper, we show that (i) the volatility of worker flows increases with age in US CPS data, and (ii)a search and matching model with life-cycle features, endogenous separation and search effort, is well suited to explain this fact. With a shorter horizon on the labor market, older workers’ outside options become less responsive to new employment opportunities, thereby making their wages less sensitive to the business cycle. Their job finding and separation rates are then more volatile along the business cycle. The horizon effect cannot explain the significant differences between prime-age and young workers as both age groups are far away from retirement. A lower bargaining power on the youth labor market brings the model closer to the data.

This study explains the impact of taxes and labor market institutions on the total hours observed in France, Germany, the United Kingdom, and the United States. We develop a balanced growth model with matching frictions in the labor market distinguishing between the extensive margin and intensive margin of labor supply. We show that (i) hours are more sensitive to changes in taxes, whereas employment reacts more to shifts in labor market institutions and (ii) a substitution effect exists between employment and hours. Counterfactual experiments show that if France had experienced the same trend in labor market institutions as the United States, its employment rate would have increased by 25 percentage points, whereas its number of hours worked per employee would have reduced by 1 percentage point. If France had chosen the US’ paths of both taxes and labor market institutions, then its employment rate would have been larger by 20 percentage points and the number of hours worked by employees would have been larger by 3 percentage points than the current one, a situation observed before the 1970s.

We study the welfare costs of business cycles in a search and matching model with financial frictions. The model replicates the volatility on labor and financial markets. Business cycle costs are sizable. Indeed, the interactions between labor market and financial frictions magnify the impact of shocks via (i) a credit multiplier effect and (ii) an endogenous wage rigidity inherent to financial frictions. In addition, in a nonlinear framework, large welfare costs of fluctuations are explained by the high average unemployment and the low job finding rates with respect to their deterministic steady-state values.

This paper proposes an equilibrium matching model for developing countries’ labor markets where the interaction between public, formal private and informal private sectors are taken into account. Theoretical analysis shows that gains from reforms aiming at liberalizing formal labor markets can be annulled by shifts in the public sector employment and wage policies. Since the public sector accounts for a substantial share of employment in developing countries, this approach is crucial to understand the main labor market outcomes of such economies. Wages offered by the public sector increase the outside option value of the workers during the bargaining processes in the formal and informal sectors. It becomes more profitable for workers to search on-the-job, in order to move to these more attractive and more stable types of jobs. The public sector therefore acts as an additional tax for the formal private firms. Using data on workers’ flows from Egypt, we show empirically and theoretically that the liberalization of labor markets plays against informal employment by increasing the profitability, and hence job creations, of formal jobs. The latter effect is however dampened or even sometimes nullified by the increase of the offered wages in the public sector observed at the same time.

Most European countries suffer from a structural weakness in employment and competitiveness. Can an optimal tax system reinforce European countries in this respect? In this paper, we show that fiscal competition can be a welfare improving second best solution if the labour wedge is sufficiently large. Indeed, a sufficiently large labour wedge calls for an expansion of the production set in both countries, thus increasing global opportunities. For a small labour wedge, this would not be the case, because the terms-of-trade externality would call for a fiscal policy that exacerbates a non-cooperative behaviour between countries. In a two-country world, we show that the symmetric Nash equilibrium can be Pareto-efficient, if employment subsidies are financed by a consumption tax. This is not the case when the former are financed by tariffs.

We first propose some new empirical evidence on the fact that the labor market conditions matter for the retirement decision at the individual level: we investigate whether unemployed workers retire before employed workers, other things being equal. Our main objective in this paper is then to propose an equilibrium unemployment approach to retirement decisions that allows us to derive the positive and normative features of retirement decisions when search and matching frictions are considered. Two main conclusions emerge: the retirement decision of unemployed workers depends on the labor-market frictions whereas that of employed workers does not; the existence of search externalities makes the retirement age of unemployed workers intrinsically suboptimal. Considering Social Security policy issues, we show that the complete elimination of the implicit tax on continued activity is not necessarily welfare-optimizing in a second best world where the labor market equilibrium suffers from distortions.

This paper seeks to gain insights on the relationship between growth and employment when considering heterogeneous agents in terms of their working horizon. Using an OECD database, our empirical estimations suggest that growth positively influences the employment rate of workers having a long working horizon (young workers) while negatively influences the employment rate of workers having a short working horizon (senior workers). We then provide theoretical foundations to this result by means of an endogenous job destruction framework a laMortensen and Pissarides (1998) where we introduce life cycle features. We show that, under the assumption of homogeneous productivity among workers, growth negatively affects the employment rate of workers having a short working horizon before retirement (senior workers) while it positively affects the employment rate of workers having a long working horizon (young workers). Numerical simulations confirm these results, however a non standard calibration is required to reproduce the elasticity values obtained in our empirical estimations.