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The effect of social security payroll tax reductions on employment and wages: an evaluation of the 2003 French reform

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  • Matthieu Bunel
  • Fabrice Gilles
  • Yannick L'Horty

Abstract

The French Fillon reform of 17 January 2003 unified the schemes of payroll tax reductions for firms that had adopted the 35-hour work week and those that had not. This reform had very different effects depending on the category of firms concerned: the payroll tax reductions was considerably greater for the firms that had remained on 39 hours than for the others, particularly for wages situated at around 1.3 times the minimum wage). This article examines in detail the nature of the reform and its effects on wages and labour costs, before presenting an evaluation of its impact on employment, using a balanced panel of firms with more than 5 employees drawn from a matching between several administrative data sources for the period 2002-2005. In both categories of firm, we find elasticities of employment with respect to labour costs that are significant and of the expected signs: a rise of 1% in average labour costs reduces employment by 0.25%. As the majority of 39-hour firms received greater reductions, the Fillon reform allowed them to raise their level of employment. For the 35-hour firms, on the contrary, the reverse situation prevailed: 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. It has, however, contributed to a rise in average wages, for both categories of firms.
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(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Matthieu Bunel & Fabrice Gilles & Yannick L'Horty, 2010. "The effect of social security payroll tax reductions on employment and wages: an evaluation of the 2003 French reform," TEPP Working Paper 2010-05, TEPP.
  • Handle: RePEc:tep:teppwp:wp10-05
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    References listed on IDEAS

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    1. Gruber, Jonathan, 1997. "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, University of Chicago Press, vol. 15(3), pages 72-101, July.
    2. Islem Gafsi & Yannick L’Horty & Ferhat Mihoubi, 2004. "Vingt ans d’évolution de l’emploi peu qualifié et du coût du travail : des ruptures qui coïncident ?," Documents de recherche 04-02, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    3. 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.
    4. Lechner, Michael, 1999. "Identification and Estimation of Causal Effects of Multiple Treatments Under the Conditional Independence Assumption," IZA Discussion Papers 91, Institute for the Study of Labor (IZA).
    5. Brodaty, Thomas & Crépon, Bruno & Fougère, Denis, 2000. "Using Matching Estimators to Evaluate Alternative Youth Employment Programs: Evidence from France, 1986-1988," CEPR Discussion Papers 2604, C.E.P.R. Discussion Papers.
    6. Matthieu Bunel, 2004. "Aides incitatives et déterminants des embauches des établissements passés aux 35 heures," Économie et Statistique, Programme National Persée, vol. 376(1), pages 91-115.
    7. Corinne Perraudin & Matthieu Bunel & Richard Duhautois & Fabrice Gilles & Patrick Kwok & Yannick L'Horty & Mariane Pauchet, 2009. "Une évaluation des effets des baisses de cotisations sociales sur les bas salaires dans le cadre de la réforme Fillon de 2003," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00626084, HAL.
    8. Fabrice Gilles, 2006. "Quels effets des réorganisations sur la date de passage aux 35 heures ?. Une étude sur données individuelles d'entreprises," Revue économique, Presses de Sciences-Po, vol. 57(6), pages 1401-1425.
    9. Vroman, Wayne, 1974. "Employer Payroll Tax Incidence: Empirical Tests with Cross-Country Data," Public Finance = Finances publiques, , vol. 29(2), pages 184-200.
    10. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
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    12. Beach, Charles M & Balfour, Frederick S, 1983. "Estimated Payroll Tax Incidence and Aggregate Demand for Labour in the United Kingdom," Economica, London School of Economics and Political Science, vol. 50(197), pages 35-48, February.
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    Cited by:

    1. Lehmann, Etienne & Marical, François & Rioux, Laurence, 2013. "Labor income responds differently to income-tax and payroll-tax reforms," Journal of Public Economics, Elsevier, vol. 99(C), pages 66-84.
    2. Raphael A Espinoza & Esther Perez Ruiz, 2014. "Labor Tax Cuts and Employment; A General Equilibrium Approach for France," IMF Working Papers 14/114, International Monetary Fund.

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