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The Effects of Reduced Social Security Contributions on Employment: an Evaluation of the 2003 French Reform

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  • Matthieu Bunel
  • Yannick L'Horty

Abstract

In 2003, the French government decided to reform the system managing the different minimum wage regulations and the targeted reductions to employers' social security contributions. The main objective of the reform was to simplify the complex regulations that were created by the progressive introduction of the 35-hour week. The reform incidentally created large variations in labour costs, depending on the type of firm and the wage level within the firm. This paper presents an evaluation of the impact of this reform on employment using a balanced panel of firms with more than five employees, drawn from a matching between several administrative data sources from 2000 to 2005. In both types of firm, significant employment elasticities can be found with respect to labour costs that have the expected signs: a rise of 1% in average labour costs reduces employment by 0.4%. As the majority of firms that remained on the 39-hour week received greater reductions, the Fillon reform allowed them to raise their level of employment. Firms that adopted the 35-hour week experienced the opposite: 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 (FTE).
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Suggested Citation

  • Matthieu Bunel & Yannick L'Horty, 2012. "The Effects of Reduced Social Security Contributions on Employment: an Evaluation of the 2003 French Reform," TEPP Working Paper 2012-12, TEPP.
  • Handle: RePEc:tep:teppwp:wp12-12
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    File URL: http://www.tepp-repec.eu/RePEc/files/teppwp/TEPP-WP-12-12-Bunel-LHorty.pdf
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    References listed on IDEAS

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    Citations

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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. Aziza GARSAA & Nadine LEVRATTO & Luc TESSIER, 2015. "Do Exemptions From Social Security Contributions Affect Job Creation? New Empirical Evidence From French Overseas Regions," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 42, pages 79-104.
    3. Nadine Levratto & Aziza Garsaa & Luc Tessier, 2013. "To what extent do exemptions from social security contributions affect firm growth? New evidence using quantile estimations on panel data," Working Papers hal-00833049, HAL.
    4. 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.
    5. Etienne Lehmann & Claudio Lucifora & Simone Moriconi & Bruno Van der Linden, 2016. "Beyond the labour income tax wedge: the unemployment-reducing effect of tax progressivity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(3), pages 454-489, June.
    6. Richard Duhautois & Fabrice Gilles, 2013. "Payroll tax reductions and job flows in France," Working Papers hal-01006652, HAL.
    7. 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.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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