Do Exemptions From Social Security Contributions Affect Job Creation? New Empirical Evidence From French Overseas Regions

Targeted reductions in employers' social security contributions are conceived as a key policy instrument used to facilitate job creation when labor cost is so high that it may deter companies from hiring new employees. Among the different measures in force in France, the set of instruments implemented in overseas Départements is the most accomplished form as the rates of exemption as well as the base and scope of these measures have reached their maximum there. This paper seeks to determine to what extent these instruments contribute to job creation looking at the growth rate in the number of employees through the use of an unbalanced panel of business entities with at least one employee. This dataset is drawn from a matching between several administrative data sources from 2004 to 2011. We study the differentiated effects of the payroll tax using a quantile regression on panel data estimation technique. We show that the impact of the exemption rate and of the intensity of use of the various measures on changes in the number of employees differ according to the establishment growth rate. The impact tends to decrease as the growth rate increases. However, these effects may significantly differ according to the size class and the industry in which the business operates. Large ones tend to be globally advantaged compared to the small ones. The coefficients associated with exemption rate are higher for most of the entities in manufacturing industry but only for a small part of those in business services.