Small Business Economics

, Volume 45, Issue 3, pp 613–641 | Cite as

Do labor tax rebates facilitate firm growth? An empirical study on French establishments in the manufacturing industry, 2004–2011

Article
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Abstract

In order to reduce labor costs and stimulate job creation, many governments implement a large set of devices mainly consisting in reduced rates of social contributions. The evaluation of their effect is still controversial. Unlike previous research, our purpose is to appraise to what extent firm growth reacts to a decrease in the cost of labor per employee. We tackle this question using an unbalanced panel of French establishments operating in the manufacturing industry between 2004 and 2011. We run estimations using a 2-STEP estimator making it possible to estimate the impact of explanatory variables on job creation at any point of the distribution of establishments’ employment growth rate, while also controlling for individual fixed-effects component. Our results show that the effect of the decrease in the labor cost generated by tax rebates mainly benefits fast growing and large establishments. Indeed, the change in the number of employees in other establishments is significantly less affected, even though the effect remains positive, by the reduction in social contributions. This is particularly the case for smaller establishments as well as for those whose growth is stagnant or negative. These results lead us to reconsider the relevance of large-scale policies aiming at reducing labor costs in the same way for all establishments, regardless of their size or financial health.

Keywords

Firm growth Job creation Reduced social security contributions Labor cost Quantile estimations on panel data 

JEL Classifications

C14 J3 J38 L25 L26 
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Notes

Acknowledgments

We are grateful to Cyrille Hagneré, the Director of Economic Studies at the ACOSS, for providing us with the datasets used in this paper and for his helpful comments and suggestions during this research. We also thank the two anonymous reviewers and the participants of the SASE conference in Chicago, July 2014, where a first version of this paper was presented.

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Copyright information

© Springer Science+Business Media New York 2015

Authors and Affiliations

  1. 1.CESUniversity of Paris 1 Panthéon SorbonneParisFrance
  2. 2.EconomiXUniversity of Paris Ouest Nanterre La DéfenseNanterre CedexFrance
  3. 3.Centre d’Etudes de l’Emploi (CEE)Noisy-le-GrandFrance
  4. 4.Kedge Business SchoolMarseilleFrance

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