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The Effects of Reduced Social Security Contributions on Employment: An Evaluation of the 2003 French Reform

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  • Mathieu Bunel
  • Yannick L'Horty

Abstract

In 2003, the French government decided to reform the system managing the different minimum wage regulations and the targeted reductions to employers' social security contributions. The main objective of the reform was to simplify the complex regulations that were created by the progressive introduction of the 35-hour week. The reform incidentally created large variations in labour costs, depending on the type of firm and the wage level within the firm. This paper presents an evaluation of the impact of this reform on employment using a balanced panel of firms with more than five employees, drawn from a matching between several administrative data sources from 2000 to 2005. In both types of firm, significant employment elasticities can be found with respect to labour costs that have the expected signs: a rise of 1% in average labour costs reduces employment by 0.4%. As the majority of firms that remained on the 39-hour week received greater reductions, the Fillon reform allowed them to raise their level of employment. Firms that adopted the 35-hour week experienced the opposite: the reform led to a fall in employment. Ultimately, the Fillon reform has had no clear effect on aggregate employment, measured either in job numbers or full-time equivalents (FTE).

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Bibliographic Info

Article provided by Institute for Fiscal Studies in its journal Fiscal Studies.

Volume (Year): 33 (2012)
Issue (Month): 3 (09)
Pages: 371-398

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Handle: RePEc:ifs:fistud:v:33:y:2012:i:3:p:371-398

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  1. A. Kugler, M. Kugler, 2008. "Labour Market Effects of Payroll Taxes in Developing Countries: Evidence from Colombia," Working Papers, Wilfrid Laurier University, Department of Economics eg0056, Wilfrid Laurier University, Department of Economics, revised 2008.
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  6. Mathieu Bunel & Fabrice Gilles & Yannick L'Horty, 2009. "Les effets des allégements de cotisations sociales sur l'emploi et les salaires : Une évaluation de la réforme de 2003," Post-Print halshs-00658475, HAL.
  7. Giuseppe Porro & Stefano Maria Iacus, 2009. "Random Recursive Partitioning: a matching method for the estimation of the average treatment effect," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 24(1), pages 163-185.
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  9. Mathieu Bunel, 2004. "Aides incitatives et déterminants des embauches des établissements passés à 35 heures," Post-Print halshs-00658490, HAL.
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Cited by:
  1. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van Der Linden, 2013. "Beyond the Labour Income Tax Wedge: The Unemployment-Reducing Effect of Tax Progressivity," TEPP Working Paper, TEPP 2013-05, TEPP.
  2. Nadine Levratto & Aziza Garsaa & Luc Tessier, 2013. "To what extent do exemptions from social security contributions affect firm growth? New evidence using quantile estimations on panel data," Working Papers hal-00833049, HAL.
  3. Lehmann, Etienne & Marical, François & Rioux, Laurence, 2013. "Labor income responds differently to income-tax and payroll-tax reforms," Journal of Public Economics, Elsevier, Elsevier, vol. 99(C), pages 66-84.

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