Currently, these exemptions from employee contributions cost public finances 75 billion euros per year. For the 2025 budget, the government will be able to rely on a report which attacked these exemptions granted to employers to promote minimum wage jobs. Are these systems put in place in the 90s still effective today? Should they be deleted?
Elisabeth Borne had commissioned, a few months ago, a report from two economists, Antoine Bozio and Étienne Wasmer to fight against “smicardisation of France” and encourage bosses to help their teams progress. For Antoine Bozio, this involves in particular the elimination of threshold effects, which mean that these exemptions decrease as the salary increases, which does not encourage the progression of these salaries.
franceinfo: Should we review these devices? Should we tackle this project?
Antoine Bozio : In any case, it is a difficult and complex project because today, we have a multitude of mechanisms for exemption from social security contributions. So, a first point of the report was to update this complexity, and the elements that would make it possible to simplify them. The second very important point is that today, we have a very specific scale which gives very high exemptions from the minimum wage, which are then withdrawn very, very quickly. An employer who wishes to increase an employee’s salary to the minimum wage therefore loses exemptions from social security contributions.
These exemptions have existed since the 90s to create employment, do they actually have an effect on employment?
Yes, when we implemented these exemptions, it had effects on employment, at a time when unemployment was high and the cost of the minimum wage was particularly high. Today, we are no longer in the situation of the 90s.
“In 2024, the employment rate has increased, the labor market is sometimes in tension, and the question of the usefulness of the exemption, which is very, very strong at the level of the minimum wage, deserves to be reviewed. “
Antoine Bozio, director of the Public Policy Instituteat franceinfo
And the main message of the report is to say that today we have elements to believe that we could soften the slope of this scale and promote both salary dynamics and jobs beyond 1, 2 minimum wage. Rather than having this very strong concentration of the scale of exemptions at the minimum wage level, which poses a risk of leaving employees concentrated at this level of remuneration without prospects of a salary increase.
These exemptions from contributions therefore encourage what we call low-wage traps with employees who remain at the minimum wage level their entire life?
A large part of the difficulty of the scientific debate is to formally establish that it is indeed the exemptions which cause this concentration of jobs at the low-wage level. This is far from obvious. On the other hand, we have enough evidence in other countries to believe that the current system is not optimal, and that if we managed to lower this bonus to encourage salary increases, we would not necessarily have any impact. negative on employment.
So a smoothing of threshold effects, then elimination for the highest salaries? Today, contribution exemptions go up to 3.5 minimum wage. Isn’t this necessary in your opinion?
Yes, we observe that the effects on employment at higher salaries are very weak, while for lower salaries, including above the minimum wage, the employment effects are proven. So our proposal is to smooth out this curve which is very complicated today, with thresholds.
An example of a threshold for a salary of 2.5 minimum wage: if we go from a salary of 3,803 euros to 3,804 euros, it is a gain of 10 euros per year for the employee, but it costs an additional 2,750 euros for the employer. It seems mind-blowing.
This is really an aberrant and extreme case of this scale. But more generally, we have a threshold at 1.6 minimum wage which is very strong, that is to say that we withdraw very sharply between a minimum wage and 1.6 minimum wage, then we have a large plateau, before arrive at a sort of big fall, which you mentioned, where there, really, there is a jump in terms of additional labor costs, simply to increase the gross salary by one euro.
In your opinion, contribution exemptions should be removed beyond how much?
In the main scenario of the report, we propose to create a single scale, ultimately smoothing the exemptions from contributions which start from the maximum level at the level of the minimum wage and which stop at 2.5 minimum wage. The way we designed this scale is to think of it as a constant budget. How can we, with a constant budget, both improve employment, improve salary dynamics and ensure that we have more jobs at higher salaries, which are also likely to bring in more for Social Security? ?
“Higher salaries will make it possible to have greater contributions to public finances.”
Antoine Bozio, director of the Public Policy Instituteat franceinfo
But will employers object that the cost of labor will increase for salaries above 2.5 minimum wage, particularly in industry?
In this scale, there are two places in the salary distribution where the cost of labor increases a little: at the level of the minimum wage, where these are sectors that are very intensive in low-skilled workers, such as the cleaning or guarding. And conversely, in sectors that are more intensive in terms of much more qualified personnel which will see the loss of exemptions.
But the industry, interestingly, is not in either lose-lose situation at all. Because the industry ultimately has employees at the median salary level, a level of 1.6 minimum wage. She will therefore benefit from this new scale. And there will be a balancing effect at the level of each company, between employees who will have increases in labor costs, and others who will have reductions in labor costs. If we achieve a zero effect on the overall labor cost at the company level, we do not expect strongly negative employment effects. However, we will have restored the salary dynamic, and allowed the upscaling of our productive fabric.
You submitted your 300-page report to Prime Minister Michel Barnier on Wednesday October 2. What are you hoping for?
In the short term, we hope that this work will have an effect in the upcoming parliamentary debate, for the budgetary question and for the social security financing law. We hope to allow MPs from all sides to think about the right way to improve the situation, for the labor market and employees, by reviewing the scale of exemptions.
And in the longer term, the report also has elements which are not intended to be put in place immediately, but to make people think about how we can simplify, make more understandable the financing of our social protection. Because there is a very important challenge in the long term to be able to find the means to finance the social protection to which we are attached, without it having negative effects, both on employment and on productivity of our economy.