Économie et Statistique n° 429-430 - 2009Low wages and labour market
Cost of Labour and Employment Flows: the Impact of the 2003 Reform
France’s 17 January 2003 Act on Wages, Working Time, and Employment Growth introduced a mechanism, effective 1 July 2003, for ensuring convergence between the official minimum wage (SMIC) and the various existing monthly guaranteed earnings (Garanties Mensuelles de Rémunération: GMRs). The end result was a single minimum earnings level on 1 July 2005. The Act also changed the mechanism for employers’ social-contribution relief on low wages. The goal was to offset the rise in the cost of labour due to the convergence process and to reach a uniform procedure for all firms by July 2005, irrespective of their collectively agreed working time. During the 2003-2005 transition period, social-contribution relief continued to differ according to whether the firm had or had not signed an agreement to reduce the work week to 35 hours by 2003. Hiring costs have thus moved differently depending on the firm. As a result, we compared the changes in unemployment-to-employment transitions according to whether the unemployed person transitioned to a signatory or non-signatory firm. By matching the Labour-Force Survey data (2001-2007) and administrative forms filed (CERFA), we found a slowdown in exits from unemployment towards firms that switched to a 35-hour work week. The reductions in employers’ social contributions consecutive to the 2003 reform appear to have been inadequate in signatory firms, but enabled non-signatories to offset the cost-of-labour increase. Lastly, the reform has not slowed unemployment exits for the most highly educated workers but has slowed that of the least educated. The latter category is more likely to be paid at near-minimum-wage levels and hence to be impacted by the upward harmonization of minimum earnings.