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

Economie et Statistique
Paru le : 26/08/2010

Social-Contribution Relief and Wage Dynamics

Romain Aeberhardt et David Sraer

The social-contributions relief introduced for employers in the 1990s has had an ambiguous impact on the rise in low-wage workers’ earnings. As they diminish the cost of labour for an employer, the cuts should not have a negative impact on wage levels at a given productivity level. By contrast, the regressive relief mechanism has made it more costly for employers to raise low wages to the threshold above which the relief does not apply. This has raised fears of slower rises in low wages under the new arrangement. The authors seek to address these issues. The difficulty lies in estimating the rise in earnings for the lowest-paid workers if the relief had not been introduced. One method consists in comparing the change in wage growth for workers to whom the contribution relief applies with the change for workers who resemble that group in terms of gross wages but are ineligible for relief (this is known as the difference-in-differences [DD] method). The results indicate that, in 1997, low-wage workers did not receive smaller pay raises than average-wage workers relative to the situation in 1994, when contribution relief was still very marginal. The second approach consists in comparing annually the wages just over and just under the threshold of 1.33 times the minimum wage, using regression discontinuity (RD). Our estimates show no significant difference in these wage trends. Overall, the findings suggest that low-wage growth for the categories covered by our study did not lose momentum after the introduction of contribution relief, at least in the short and medium term.

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