Ebook The Effects of Payroll Tax Subsidies for Low Wage Workers on Firms Level Decisions
Payroll tax subsidies for low-wage workers were set up in France in 1993 in order to fight against the disappearance of unskilled jobs. The implementation of such policy is the opportunity to examine the effects on employment of policies aimed at skewing the wage distribution at the bottom of this distribution like changes in the minimum wage.
The initial scheme of 1993 was considerably strengthened between 1995 and 1996. The purpose of this paper is to evaluate the effect of this large increase on employment and other firm level variables.
Detecting and measuring the effect of such policies as usually been difficult and their importance on labor market outcomes is still a matter of considerable debate (see the discussions surrounding the Card and Krueger’, 1995 study). Some studies are based on the estimation of structural models as Meyer and Wise (1983) and Laroque and Salanié (2002), but most studies focus on policy changes that they treat as natural experiment.
One important difficulty faced by researchers however is to find a proper control group. Some have used aggregate data on employment in some industries in different states as in Card and Krueger (1994). On the opposite Abowd, Kramarz, Margolis and Philippon, (2001), use individual employee data and define their control group as workers just above the future level of minimum wage. Kramarz Philippon (2001) uses the same idea to study the effect of payroll tax subsidies in France which is the purpose of our paper.
Our study is based at the firm level. We view this as a strong advantage as it allows us to account for substitutions between various types of workers, which is likely to be very important when implementing such a policy. This allows us also to examine the effect of the policy on employment as well as on other firm level variables. For example we examine the effect of the policy on capital stock and as far as we know this type of issue as never been examined empirically.
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