The Impact of Differential Payroll Tax Subsidies on Minimum Wage Employment

By Francis Kramarz, Thomas Philippon. Social Science Research Network, 2001

228 citations recorded by the source corpus.

In this article, we study the impact of changes of total labor costs on employment of low-wage workers in France in a period, 1990 to 1998, that saw sudden and large changes in these costs. We use longitudinal data from the French Labor Force survey (« enquete emploi ») in order to understand the consequences of real decreases and real increases of the labor cost. We examine the transition probabilities from employment to non-employment and from non-employment to employment. In particular, we compare the transition probabilities of the workers that were directly affected by the changes ("between" workers) with the transition probabilities of workers closest in the wage distribution to those directly affected ("marginal" workers). In all years with an increasing minimum cost, the "between" group (or the treated using the vocabulary of controlled experiments) comprises all workers whose costs in year t lie between the old (year t) and the new (year $1) minimum. In all years with a decreasing minimum, the "between" group comprises all workers whose costs in year t+1 lie between the present minimum cost (year t+1) and the old (year t) minimum cost. The results can be summarized as follows. Comparing years of increasing minimum cost and decreasing minimum cost, difference-in-difference estimates imply that an increase of 1% of the cost implies roughly an increase of 1.5% in the probability of transiting from employment to non-employment for the treated workers, the resulting elasticity being -1.5. Second, results for the transitions from non-employment to employment are less clear-cut. Tax subsidies have a small and insignificant impact on entry"marginal" group constitutes a good control group. In addition, there is no obvious evidence of substitution between the "between" and "marginal" groups of workers, but there is some evidence of substitution between workers within the tax subsidy zone, with wages above those of the "marginal", and workers outside the subsidy zone.

Subfields: Economics and Econometrics, Gender Studies

View Paper: https://www.semanticscholar.org/paper/3da4834d1c0eedd06ee53358b60a623c8a4275e7

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Citations in the corpus

The Effectiveness of Hiring Credits (2019, background): “For instance, Kramarz and Philippon (2001) and Abowd et al. (2006) found that the elasticity of employment with respect to the minimum wage is about 2 for men and 1:5 for women in France.”
Two-Tier Labor Markets in the Great Recession: France vs. Spain (2010, unknown): “(1− β)[Wt(ε̄)− U ] = β [Jt(ε̄)− V ] (28)”
Marketization of Household Production and the EU-US Gap in Work (2005, unknown): “One could look at the impact of the ‘loi Robien’ (Kramarz and Philippon, 2001), for instance, which gave tax breaks to firms that hired workers”
The Impact of Chinese Import Competition on the Local Structure of Employment and Wages: Evidence from France (2017, unknown): “While there are some legal exemptions to the minimum wage, they account for a small share of the working population, see Kramarz and Philippon (2001). (33)I do this in order to split the sample somewhat equally, I focus on the 15th percentile.”
The Employment Effects of Low-Wage Subsidies (2010, methodology): “Employment effects of the French payroll tax subsidy scheme have been evaluated by Kramarz and Philippon (2001) and Crepon and Desplatz (2003). Kramarz and Philippon base their evaluation on household survey data and examine the effects of changes in the minimum labour costs - hence capturing the ef”
Youth Unemployment in Belgium: Diagnosis and Key Remedies (2013, unknown): “There is increasing agreement among researchers that minimum wages have a very harmful impact on the employment of low-skilled youth (Kramarz and Philippon, 2001; Neumark and Wascher, 2008).”