Payroll Tax Reductions for Minimum Wage Workers: Relative Labor Cost or Cash Windfall Effects?

Sophie Cottet

No 11076, CESifo Working Paper Series from CESifo

Abstract: This paper uses administrative employer-employee data to uncover the effects of a large payroll tax reduction for minimum-wage workers in France. Exploiting the change in labor costs both at the job level and at the firm level, I find that the policy spurred an additional 13 percentage points increase in the number of minimum-wage jobs, and that these extra jobs stem exclusively from firms which had previously very few or no minimum-wage workers. On the other hand, firms which already employed workers at minimum-wage levels, and therefore benefit ex ante from a cash windfall, increase employment irrespective of wage levels. These firms grow by an additional 4 percent in the first two years following the reform. This effect is stronger in liquidity-constrained and credit-constrained firms. Overall, these results show that not all firms react to changes in relative labor costs and highlight the importance of alleviating liquidity constraints for firm growth.

Keywords: payroll taxes; firm behaviour; rent sharing; minimum wage (search for similar items in EconPapers)
JEL-codes: H22 H25 H32 J21 J23 (search for similar items in EconPapers)
Date: 2024
New Economics Papers: this item is included in nep-eec, nep-inv, nep-lma, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp11076.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11076

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().