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

Sophie Cottet
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Sophie Cottet: PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

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Abstract: This paper uses administrative employer-employee data to uncover the effects of a large payroll tax reduction for minimum-wage workers in France in the 1990s. Exploiting the change in labor costs both at the job level and at the firm level, I find that the number of minimum-wage jobs increases but that these additionnal jobs stem exclusively from firms which had previously very few, or none, minimum wage workers. On the contrary, firms which already employed workers at minimum-wage levels, and thus benefit ex ante from a cash windfall, increase employment irrespective of wage levels. Overall, these results suggest that targeting cash-contrained firms, and not only groups of workers, is key for employment growth.

Keywords: Payroll taxes; Firm behavior; Rent sharing; Minimum wage (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-eur
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03010943v1
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