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A Quantitative Evaluation of Payroll Tax Subsidies For Low-Wage Workers: An Equilibrium Search Approach

Author

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  • Arnaud Chéron

    (GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)

  • Jean-Olivier Hairault

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • François Langot

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

Phelps (1994) presented the case for a low-wage subsidy policy. Since the mid-1990s, France has experimented with this strategy. This paper evaluates the e®ect of this policy on employment and also on output and welfare. We construct an equilibrium search model incorporating wage posting and specific human capital investment, where unemployment and the distribution of both wages and productivity are endogenous. We estimate this model using French data. Numerical simulations show that the prevailing minimum wage allows a high production level to be reached by increasing training investment, even though the optimal minimum wage is lower. We show that payroll tax subsidies enhance welfare more than a reduction in the minimum wage when they are spread over a large range of wages in order to avoid specialization in low productivity jobs.

Suggested Citation

  • Arnaud Chéron & Jean-Olivier Hairault & François Langot, 2008. "A Quantitative Evaluation of Payroll Tax Subsidies For Low-Wage Workers: An Equilibrium Search Approach," PSE-Ecole d'économie de Paris (Postprint) halshs-00270295, HAL.
  • Handle: RePEc:hal:pseptp:halshs-00270295
    DOI: 10.1016/j.jpubeco.2007.09.012
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    Cited by:

    1. Langot, François & Pizzo, Alessandra, 2019. "Accounting for labor gaps," European Economic Review, Elsevier, vol. 118(C), pages 312-347.
    2. Éric Heyer & Mathieu Plane, 2012. "Impact des allégements de cotisations patronales des bas salaires sur l'emploi. L'apport des modèles macroéconomiques," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(7), pages 123-140.
    3. Sebastien Menard, 2019. "The impact of benefit sanctions on equilibrium wage dispersion and job vacancies," TEPP Working Paper 2019-08, TEPP.
    4. Chéron, Arnaud & Langot, François, 2010. "On-the-job search equilibrium with endogenous unemployment benefits," Labour Economics, Elsevier, vol. 17(2), pages 383-391, April.
    5. Sarah Le Duigou, 2012. "Effect of Age on the Wage Distribution: A Quantitative Evaluation Using US Data," Working Papers halshs-00856225, HAL.
    6. Mathieu Bunel & Céline Emond & Yannick L’Horty, 2012. "Évaluer les réformes des exonérations générales de cotisations sociales," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(7), pages 57-103.
    7. Clément Carbonnier, 2014. "Payroll Taxation and the structure of qualifications and wages in a segmented frictional labor market with intrafirm bargaining," THEMA Working Papers 2014-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    8. Huttunen, Kristiina & Pirttilä, Jukka & Uusitalo, Roope, 2013. "The employment effects of low-wage subsidies," Journal of Public Economics, Elsevier, vol. 97(C), pages 49-60.
    9. Pierre Cahuc & Stéphane Carcillo & Thomas Le Barbanchon, 2014. "Do Hiring Credits Work in Recessions?," SciencePo Working papers hal-03602366, HAL.
    10. Tripier, Fabien, 2011. "The efficiency of training and hiring with intrafirm bargaining," Labour Economics, Elsevier, vol. 18(4), pages 527-538, August.
    11. Osuna Victoria, 2009. "Taxing Overtime or Subsidizing Employment," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-28, October.
    12. Matthieu Bunel & Fabrice Gilles & Yannick L’Horty, 2009. "Les effets des allègements de cotisations sociales sur l’emploi et les salaires : une évaluation de la réforme Fillon de 2003," Documents de recherche 09-12, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    13. Pierre Cahuc & Stéphane Carcillo & Thomas Le Barbanchon, 2014. "Do Hiring Credits Work in Recessions?," Working Papers hal-03602366, HAL.
    14. Binnur Balkan & Yusuf Soner Baskaya & Semih Tumen, 2014. "Evaluating the Impact of the Post-2008 Employment Subsidy Program in Turkey," Working Papers 1414, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    15. Clément Carbonnier, 2015. "Payroll Taxation, qualifications, wages and unemployment rates in a frictional labor market with productive interactions between segments," Working Papers hal-01203122, HAL.
    16. Daniel Haanwinckel & Rodrigo R Soares, 2021. "Workforce Composition, Productivity, and Labour Regulations in a Compensating Differentials Theory of Informality [Search with Multi-worker Firms]," Review of Economic Studies, Oxford University Press, vol. 88(6), pages 2970-3010.
    17. repec:spo:wpecon:info:hdl:2441/eo6779thqgm5r489m6s8g682l is not listed on IDEAS
    18. Bucher, Anne, 2010. "Impacts of hiring subsidies targeted at the long-term unemployed on the low-skilled labor market: The French experience," Economic Modelling, Elsevier, vol. 27(2), pages 553-565, March.
    19. Aziza Garsaa & Nadine Levratto, 2015. "Do labor tax rebates facilitate firm growth? An empirical study on French establishments in the manufacturing industry, 2004–2011," Small Business Economics, Springer, vol. 45(3), pages 613-641, October.
    20. Pierre Cahuc & Stéphane Carcillo & Thomas Le Barbanchon, 2014. "Do Hiring Credits Work in Recessions?: Evidence from France," Sciences Po publications 8330, Sciences Po.
    21. Albertini, Julien & Hairault, Jean-Olivier & Langot, François & Sopraseuth, Thepthida, 2017. "A Tale of Two Countries: A Story of the French and US Polarization," IZA Discussion Papers 11013, Institute of Labor Economics (IZA).
    22. Vincent Charlet & Philippe Frocrain, 2017. "Les limites des allégements de charges sur les bas salaires," Working Papers hal-01695167, HAL.
    23. Carl, Jeremy & Fedor, David, 2016. "Tracking global carbon revenues: A survey of carbon taxes versus cap-and-trade in the real world," Energy Policy, Elsevier, vol. 96(C), pages 50-77.

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