Three reforms aimed at reducing labour costs are examined: (i) the 2015 Responsibility Pact; (ii) the CICE; and the 1995 general tax relief measures, known as the ‘Juppé relief measures’. None of the analyses carried out has shown any positive effects of a reduction in labour costs on exports.
The 2015 Responsibility Pact (PR15) introduced a 1.8-point reduction in the social security contribution rate for family allowances on wages below 1.6 times the minimum wage. Among a group of firms with similar exposure to the CICE tax credit, we compare those more or less affected by the Responsibility Pact. No effect is detected on international trade variables (export value, extensive margin, unit value). Some specifications suggest an effect on employment, total sales and value, but these effects remain sensitive to the reference year used and are not considered robust. However, it appears to be a robust finding that, outside the manufacturing sector, a significant proportion of the fall in labour costs was passed on to profit margins (measured by the ratio of gross operating surplus to sales). It should be noted that these results are based on a specific sample of firms, which do not differ in terms of their exposure to the CICE or to general reductions in social security contributions. Furthermore, the analysis highlights the role of the outsourcing of certain services, which is likely to introduce a bias in the measurement of the true labour cost shock represented by PR15. Although informative regarding the links between labour costs and firm performance, the results of this study should be interpreted as correlations rather than causal effects. Indeed, the trajectories of the treated firms over the pre-treatment period differ slightly from those of the firms in the control group.
The analysis of the CICE confirms the absence of a significant effect of the CICE on exports between 2013 and 2017. This analysis is a simple extension of Malgouyres and Mayer (2018) to the years 2016 and 2017. Furthermore, using a similar specification, we analyse the effects of the 2016 Responsibility Pact, which extended the 1.8-point reduction in the social security contribution rate for family allowances to wages below 3.5 times the minimum wage. We find no effect on exports. Nevertheless, given the short time horizon, we do not regard this lack of a detectable effect as particularly informative.
The analysis highlights positive and significant effects of the Juppé II Rebate on firm performance, on a scale broadly comparable to the results of Crépon and Desplatz (2001). However, the effects on international trade variables are not significant. Thus, even though within the manufacturing sector, the across-the-board reductions in employer contributions appear to be strongly correlated with job creation and retention, as well as with an increase in value added, the analysis does not reveal a positive effect on international competitiveness.
Whilst (i) labour costs and export performance are strongly negatively correlated (see, for example, Decramer et al., 2016; Malgouyres and Mayer, 2018), and (ii) some studies highlight the responsiveness of export prices and values to changes in certain production costs (such as electricity; see Fontagné et al., 2017), this report does not reveal any correlation between a particular source of variation in labour costs (exemptions from social security contributions) and international competitiveness.
