• The new scheme provides the same reduction in labour costs (equivalent to 6 per cent of gross pay for employees earning less than 2.5 times the minimum wage), but as this reduction takes effect immediately, it should, in principle, be reflected in labour cost calculations.
• Given this change in nature, this relief may be more ‘noticeable’ for firms and better placed to stimulate employment.
• With both the CICE and the new reduction in social security contributions, it is much more costly for an employer to pay an employee slightly more than 2.5 times the minimum wage than to pay them slightly less. If the reduction in labour costs becomes more ‘transparent’ for firms as a result of the reform, we should see firms responding more strongly to this threshold effect following the reform.
• We examine the distribution of wages before and after the reform using the ‘bunching’ method. If there is a peak in the wage distribution to the left of the threshold, this would indicate that firms are taking the threshold effect on labour costs into account.
• In line with existing research, we do not observe such a peak prior to the 2019 reform. In 2020, a slight cluster appears to the left of the threshold. Furthermore, the probability of receiving a pay rise becomes slightly lower for wages situated just to the left of the threshold. These effects are amplified when we restrict our analysis to firms with a significant proportion of their employees paid around the threshold.
• These results appear to point to a gradual increase in the prominence of the reduction in labour costs resulting from the reform, but the effects are small and will need to be confirmed in subsequent years.
• Furthermore, the conversion of the CICE into a reduction in social security contributions may have an impact on firms’ cash flow. Whilst the CICE constituted a claim on the State for the beneficiary firm, the reduction in social security contributions results in an increase in the firm’s liquid assets.
• We examine the effects of the reform on firms’ employment behaviour as well as on performance indicators. We compare firms that benefited significantly from the CICE prior to the reform with those that benefited less. To ensure greater comparability between the groups, we restrict the analysis to firms with a large proportion of their total wage bill situated close to the threshold of 2.5 times the minimum wage.
• In 2019 and 2020, the reform had no effect on employment, sales or firm investment. However, the repayment of the State’s CICE claim relating to the pre-reform years was largely associated with an increase in firms’ cash holdings in 2019, whilst other accounting items, such as fixed assets, do not appear to have responded to this sudden increase in cash flow.
