Estimating the Effects of a French Reform on Employment Using a Macrosectoral Approach

ABSTRACT

This article evaluates the effects on employment of a major French reform in force between 2013 and 2018. The measure reduced labor costs by introducing a corporate tax credit proportional to the wage bill for workers earning up to 2.5 times the French minimum legal wage. Insofar as almost all firms could benefit from the reform, no control group is available for estimating the effects on employment. This paper proposes an original approach to overcome the absence of a control group. Using data from France's national accounts, a structural model of employment is estimated from which counterfactual scenarios of employment by branch are simulated. The reform had a positive but minor impact on employment, confined to service activities. This result is interpreted as a consequence of the design of the measure that shifted taxation from firms to households, producing a positive supply shock but a negative demand shock.