Économie et Statistique n° 412 The Relationship between Salary and Job Mobility in France - Job and Labour Force Flows in France: a Reassessment - The Motivating Effects of the French Tax Credit for Low-Earners: a Difficult Evaluation.

Economie et Statistique
Paru le : 01/10/2008
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The Motivating Effects of the French Tax Credit for Low-Earners: a Difficult Evaluation

Franck Arnaud, Marion Cochard, Bérengère Junod-Mesqui, Sébastien Vermare

The idea that the labour market was suffering from supply problems led, at the beginning of the decade, to the introduction of the prime pour l'emploi (PPE, a tax credit for low earners), adopted as part of a series of reforms to make the transition from unemployment to employment more profitable. The law of 30th May 2001, which created the scheme, set out its purpose as follows: “An entitlement to a tax refund, called the employment bonus, is being introduced in order to encourage workers to return to employment or stay in their jobs, for the benefit of natural persons domiciled in France”. Based on the 2001 Tax Income Survey, two methods have been used to evaluate the PPE’s possible effect on employment: both compared a treatment group (made up of potential beneficiaries) against a control group, of which the members were not affected by the scheme but had similar characteristics to those of the first group. No significant effect of the PPE on employment emerged, including when there was a focus on the employment of married women. These results, in line with those of previous studies, which highlighted the reform’s weak motivational power, can be explained, on the one hand, by the small sums distributed under the PPE in 2001 and, on the other, undoubtedly by the considerable time-lag between returning to the workplace and the PPE actually being paid (up to 18 months), which made it less visible. These results should, however, be considered in context. Firstly, our study concerns the PPE paid on the basis of income in 2001 and the scheme was probably still not very well known just one year after being introduced. Since then, the PPE has been adapted (higher credits for part-time employment, an increased allowance, instalments and monthly payments) which, combined with tax officials being better informed, has improved its motivational impact.

Economie et Statistique
No 412
Paru le : 01/10/2008