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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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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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    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. Antoine Bozio, 2024. "The unusual French policy mix towards labour market inequalities," Fiscal Studies, John Wiley & Sons, vol. 45(1), pages 43-54, March.
    3. Sophie Cottet, 2020. "Payroll Tax Reductions for Minimum Wage Workers: Relative Labor Cost or Cash Windfall Effects?," Working Papers halshs-03010943, HAL.
    4. Zhao, Fang & Xu, Jiayi & Fang, Guanfu, 2022. "The heterogeneous effects of employment-based pension policies on employment: Evidence from urban China," Journal of Asian Economics, Elsevier, vol. 78(C).
    5. Mr. Raphael A Espinoza & Mrs. Esther Perez Ruiz, 2014. "Labor Tax Cuts and Employment: A General Equilibrium Approach for France," IMF Working Papers 2014/114, International Monetary Fund.

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