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The Impact of Differential Payroll Tax Subsidies on Minimum Wage Employment

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Author Info
Kramarz, Francis () (CREST-INSEE, CNRS, Paris, CEPR, London and IZA, Bonn)
Philippon, Thomas (MIT, Cambridge)

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Abstract

In this article, we study the impact of changes of total labor costs on employment of low-wage workers in France in a period, 1990 to 1998, that saw sudden and large changes in these costs. We use longitudinal data from the French Labor Force survey (« enquête emploi ») in order to understand the consequences of real decreases and real increases of the labor cost. We examine the transition probabilities from employment to non-employment and from non-employment to employment. In particular, we compare the transition probabilities of the workers that were directly affected by the changes ("between" workers) with the transition probabilities of workers closest in the wage distribution to those directly affected ("marginal" workers). In all years with an increasing minimum cost, the "between" group (or the treated using the vocabulary of controlled experiments) comprises all workers whose costs in year t lie between the old (year t) and the new (year $1) minimum. In all years with a decreasing minimum, the "between" group comprises all workers whose costs in year t+1 lie between the present minimum cost (year t+1) and the old (year t) minimum cost. The results can be summarized as follows. Comparing years of increasing minimum cost and decreasing minimum cost, difference-in-difference estimates imply that an increase of 1% of the cost implies roughly an increase of 1.5% in the probability of transiting from employment to non-employment for the treated workers, the resulting elasticity being -1.5. Second, results for the transitions from non-employment to employment are less clear-cut. Tax subsidies have a small and insignificant impact on entry"marginal" group constitutes a good control group. In addition, there is no obvious evidence of substitution between the "between" and "marginal" groups of workers, but there is some evidence of substitution between workers within the tax subsidy zone, with wages above those of the "marginal", and workers outside the subsidy zone.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 219.

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Length: 38
Date of creation: Nov 2000
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Handle: RePEc:iza:izadps:dp219

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Related research
Keywords: Minimum wage; total labor costs; tax subsidies;

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Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

References listed on IDEAS
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  1. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June. [Downloadable!] (restricted)
  2. repec:fth:prinin:355 is not listed on IDEAS
  3. Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule To Estimate The Effect Of Class Size On Scholastic Achievement," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 533-575, May. [Downloadable!] (restricted)
  4. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 55-81, October.
  5. Guy Laroque ; Bernard Salanié, . "Breaking Down Married Female Non-Employment in France," Working Papers 99-31, Centre de Recherche en Economie et Statistique. [Downloadable!]
    Other versions:
  6. John M. Abowd & Francis Kramarz & Thomas Lemieux & David N. Margolis, 1997. "Minimum Wages and Youth Employment in France and the United States," NBER Working Papers 6111, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "Minimum Wages and Employment in France and the United States," NBER Working Papers 6996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. David Card & Francis Kramarz & Thomas Lemieux, 1996. "Changes in the Relative Structure of Wages and Employment: A Comparison of the United States, Canada, and France," NBER Working Papers 5487, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  9. Brown, Charles, 1999. "Minimum wages, employment, and the distribution of income," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 32, pages 2101-2163 Elsevier. [Downloadable!] (restricted)
  10. Thierry Magnac, . "State Dependence and Heterogeity in youth Employment Histories," Working Papers 97-47, Centre de Recherche en Economie et Statistique. [Downloadable!]
  11. David Card & Alan B. Krueger, 1998. "A Reanalysis of the Effect of the New Jersey Minimum Wage Increase on the Fast-Food Industry with Representative Payroll Data," NBER Working Papers 6386, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  12. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier Pierrard & Henri Sneessens, 2004. "The European Labour Markets - Aggregate Unemployment and Relative Wage Rigidities," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 5(1), pages 19-23, October. [Downloadable!]
  2. Adriana Kugler & Juan F. Jimeno & Virginia Hernanz, 2002. "Employment Consequences of Restrictive Permanent Contracts: Evidence from Spanish Labor Market Reforms," Economics Working Papers 651, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  3. Fabio Veras Soares, 2005. "Minimum Wage Hikes And Employment Transitions In Brazil," Anais do XXXIII Encontro Nacional de Economia [Proceedings of the 33th Brazilian Economics Meeting] 164, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  4. Pierre Cahuc & Stéphane Carcillo, 2007. "The Shortcomings of a Partial Release of Employment Protection Laws: The Case of the 2005 French Reform," IMF Working Papers 06/301, International Monetary Fund. [Downloadable!]
  5. Laroque, Guy & Salanié, Bernard, 1999. "Breaking Down Married Female Non-Employment in France," CEPR Discussion Papers 2239, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  6. Abowd, John M. & Kramarz, Francis & Margolis, David N. & Philippon, Thomas, 2000. "The Tail of Two Countries: Minimum Wages and Employment in France and the United States," IZA Discussion Papers 203, Institute for the Study of Labor (IZA). [Downloadable!]
  7. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "Minimum Wages and Employment in France and the United States," NBER Working Papers 6996, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wages and their Alternatives: A Critical Assessment," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Anna, BATYRA & Henri R., SNEESSENS, 2007. "Selective Reductions in Labour Taxation : Labour Market Adjustments and Macroeconomic Performance," Discussion Papers (ECON - Département des Sciences Economiques) 2007001, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  10. Crépon, Bruno & Kramarz, Francis, 1999. "Working 40 Hours or Not Working 39: Lessons from the 1981 Mandatory Reduction of Weekly Working Hours," CEPR Discussion Papers 2158, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  11. Skedinger, Per, 2007. "The Design and Effects of Collectively Agreed Minimum Wages: Evidence from Sweden," Working Paper Series 700, Research Institute of Industrial Economics. [Downloadable!]
  12. Chéron, Arnaud & Hairault, Jean-Oliver & Langot, François, 2004. "Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach," IZA Discussion Papers 1364, Institute for the Study of Labor (IZA). [Downloadable!]
  13. Crépon, Bruno & Kramarz, Francis, 2002. "Employed 40 Hours or Not-Employed 39: Lessons from the 1982 Mandatory Reduction of the Workweek," IZA Discussion Papers 416, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  14. Richard Dickens & Mirko Draca, 2005. "The Employment Effects of the October 2003 Increase in the National Minimum Wage," CEP Discussion Papers dp0693, Centre for Economic Performance, LSE. [Downloadable!]
  15. Olivier, PIERARD, 2004. "Impact of Selective Reductions in Labor Taxation," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES). [Downloadable!]
  16. Marc Gurgand & David Margolis, 2008. "Does Work Pay in France ? Monetary Incentives, Hours Constraints and the Guaranteed Minimum Income," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00202299_v1, HAL. [Downloadable!]
    Other versions:
  17. Isabelle Méjean & Lise Patureau, 2008. "Location decisions and Minimum Wages," THEMA Working Papers 2008-06, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
    Other versions:
  18. Andreas Knabe & Ronnie Schöb, 2008. "Minimum Wage Incidence: The Case for Germany," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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