A bonus-malus system makes it possible to adjust employers’ unemployment insurance contributions according to the balance between their contributions and the benefit payments they trigger when they make an employee redundant. Such a system helps to stabilise the labour market, both by limiting temporary dismissals and by limiting fluctuations in employment in the event of an aggregate shock. We show that this system, which is already in place in the United States, is justified in France by the scale of cross-subsidies, which account for 20 per cent of the scheme’s resources. Furthermore, to be effective, it must be extended to all firms and sectors because, whilst the average differences are significant, persistent disparities exist between firms within the same sector. We show that an adjustment of plus or minus one percentage point (two for temporary work) would reduce cross-subsidies by 20 per cent.
Should employer contributions to unemployment insurance be adjusted?
This paper analyses a bonus-malus system for employers that has been introduced in France to stabilise the labour market.
Reference IPP Policy Brief No. 57
Presentation
Key Results
- Transfers between sectors account for 20 per cent of the unemployment insurance scheme’s resources.
- Transfers to the temporary work sector alone account for 12 per cent of resources.
- Whilst there are significant disparities between sectors, persistent differences also exist between firms within the same sector.
- The modulation of employer contributions is an essential tool for limiting cross-subsidisation.
- Contrary to what was envisaged in the 2019 reform, this modulation must apply to all sectors and all firms.
- A modulation of plus or minus one percentage point for most sectors (two for the temporary work sector) would reduce cross-subsidies by 20 per cent.
Basile Vidalenc