lThe main public policy in favor of employment has been, since the 1990s, the policy of reducing employers’ social contributions, with the aim of reducing the cost of labor. However, it causes income losses for Social Security that amounted to almost 75 billion euros in 2023, which must be financed with other taxes, which represents almost 3 points of the gross domestic product (GDP).
This policy is aimed primarily at low wages and therefore mechanically leads to favoring the hiring of employees paid at the minimum wage level. Therefore, the proportion of these employees in total employment has increased, partly due to recent cyclical increases in the minimum wage, but also due to numerous unintended effects of the contribution exemption policy, which should therefore be corrected.
These exemptions decrease rapidly for slightly higher salaries, like other aid from the socio-fiscal system (personal housing aid, activity bonus, etc.). An employer who increases an employee’s salary thus loses some of these exemptions. In certain cases, you have to pay 480 euros for your employee to receive 100 euros of additional disposable income!
Prioritize salary dynamics
These rates are dissuasive for salary dynamics. This was anticipated in all successive reports for decades on the effect of exemptions, but the priority was the fight against unemployment. At first he was right: in fact, at the end of the 1990s, unemployment was over 12%; Technological and globalization shocks left less skilled employees behind. Little by little a consensus was established: the priority was to reduce labor costs. But today the context is different: the new shocks are linked to robotization, automation and tomorrow to artificial intelligence, also affecting employees who earn between 1.2 and two minimum wages.
Therefore, it is legitimate to reorient efforts towards these categories of employees. We must no longer make increasing minimum wage employment the only compass for reforms and aiming for better quality jobs. In a context in which employment has increased, we now recommend favoring wage dynamics by reducing the slope of the reductions, that is, withdrawing these contribution reductions more slowly.
With a constant budget, this implies a prudent reduction of contribution reductions to the level of the minimum wage, but in return allows these reductions to be increased for intermediate salaries, between 2,100 and 3,400 euros, in order to promote jobs beyond the minimum wage . . In this way, employers will be able to more easily increase their number of employees and allow them to escape the trap of low wages, reducing the additional cost of an increase by 10%.
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