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The unusual French policy mix towards labour market inequalities

Author

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  • Antoine Bozio

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

This short paper presents an overview of the French policy mix towards labour market inequalities, consisting of a high minimum wage together with targeted payroll tax cuts around the minimum wage. It reviews the recent literature documenting the impact of that policy mix on employment and wage inequality. The main takeaways are that pre‐tax wage inequality has been increasing in France rather like it has in the UK and the US, while net wage inequality has decreased and then remained stable. The employment experience for the middle age group is also very close in France to the one in the UK and the US, while it differs markedly at young and older ages. The paper offers two more general thoughts on how to make progress in comparing policy options. First, most studies tend to give too much weight to tax and benefit reforms in being able to reduce inequality as they disregard incidence mechanisms, and fail to incorporate properly longer‐term effects of other policies on pre‐tax inequality. Second, the design of effective policy should always incorporate simplicity and salience. Failure to do so is likely to lead to little expected impact of such policies.

Suggested Citation

  • Antoine Bozio, 2024. "The unusual French policy mix towards labour market inequalities," Post-Print hal-04211734, HAL.
    • Handle: RePEc:hal:journl:hal-04211734
    DOI: 10.1111/1475-5890.12329
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    References listed on IDEAS

    as
    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    2. Sophie Cottet, 2020. "Payroll Tax Reductions for Minimum Wage Workers: Relative Labor Cost or Cash Windfall Effects?," PSE Working Papers halshs-03010943, HAL.
    3. Saez, Emmanuel & Schoefer, Benjamin & Seim, David, 2021. "Hysteresis from employer subsidies," Journal of Public Economics, Elsevier, vol. 200(C).
    4. Verdugo, Gregory, 2014. "The great compression of the French wage structure, 1969–2008," Labour Economics, Elsevier, vol. 28(C), pages 131-144.
    5. Richard Blundell & Antoine Bozio & Guy Laroque, 2013. "Extensive and Intensive Margins of Labour Supply: Work and Working Hours in the US, the UK and France," Fiscal Studies, Institute for Fiscal Studies, vol. 34(1), pages 1-29, March.
    6. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
    7. Matthieu Bunel & Fabrice Gilles & Yannick L'Horty, 2009. "The effect of social security payroll tax reductions on employment and wages: an evaluation of the 2003 French reform," Working Papers hal-01292089, HAL.
    8. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    9. Antoine Bozio & Thomas Breda & Julien Grenet & Arthur Guillouzouic, 2024. "Does Tax-Benefit Linkage Matter for the Incidence of Payroll Taxes?," Institut des Politiques Publiques halshs-02191315, HAL.
    10. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
    11. Richard Rogerson, 2008. "Structural Transformation and the Deterioration of European Labor Market Outcomes," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 235-259, April.
    12. Fabrice Gilles & Yannick L Horty & Ferhat Mihoubi & Xi Yang, 2018. "Evaluating the impact of firm tax credits. Results from the French natural experiment CICE," TEPP Working Paper 2018-05, TEPP.
    13. Richard Blundell & Antoine Bozio & Guy Laroque, 2011. "Labor Supply and the Extensive Margin," American Economic Review, American Economic Association, vol. 101(3), pages 482-486, May.
    14. Sophie Cottet, 2020. "Payroll Tax Reductions for Minimum Wage Workers: Relative Labor Cost or Cash Windfall Effects?," Working Papers halshs-03010943, HAL.
    15. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
    16. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2008. "Trends in U.S. Wage Inequality: Revising the Revisionists," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 300-323, May.
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    Cited by:

    1. Antoine Bozio & Malka Guillot & Lukas Puschnig & Maxime Tô, 2024. "What lies behind France's low level of income inequality?," Fiscal Studies, John Wiley & Sons, vol. 45(3), pages 309-323, September.

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