Économie et Statistique n° 429-430 - Low wages and labour market

Economie et Statistique
Paru le : 26/08/2010

Does Social-Contribution Relief Impact the Wage Mobility of Low-Wage Workers?

Bertrand Lhommeau et Véronique Rémy

This article seeks to determine the effects of reductions in employers’ social contributions on the wage policy of firms towards low-wage workers. A theoretical approach using a matching model suggests that contribution relief has an ambiguous impact on wage growth: on the one hand, the average cost of labour is reduced and firms can use part of the resulting surplus to accelerate wage promotion; on the other hand, the marginal cost of labour rises because the cuts are regressive, driving up the cost of a gross pay raise correspondingly. We compare these theoretical conclusions with an estimate of a fixed-effect model that studies the wage-growth determinants for low wages, i.e., monthly wages below 1.3 times the French minimum wage (SMIC). We use a panel of workers employed by the same firm for at least three years, tracking them over a twenty-year period. Our results confirm the existence of two antagonistic effects and allow us to separate them. The negative effect of marginal-cost progressivity on wage mobility of low-wage workers outweighs the positive effect. The negative impact is mitigated if we broaden the definition of low wages to 1.8 times the minimum wage.

Economie et Statistique
No 429-430
Paru le : 20/08/2010