The Detaxation of Overtime Hours: Lessons from the French Experiment

Transcription

1 The Detaxation of Overtime Hours: Lessons from the French Experiment Pierre Cahuc (Polytechnique, CREST) Stephane Carcillo (OECD, Université Paris 1) December / 35

2 Introduction In October 2007: introduction of tax exemptions on overtime hours in France Earnings from overtime hours (above 35 hours, in principle, with exceptions): exempted from social contributions paid by employees exempted from income tax lower social contributions paid by employers 2 / 35

3 Aim of the policy: increasing working time "work more to earn more" circumvent the 35-hour regulation Innovative policy: only other examples in Austria (1996), Belgium, (2005), Italy (2008), Luxembourg (2008) The tax exemption is supported by employers (and employees) 3 / 35

4 This support and the number of overtime hours declared after the reform help policy makers utter this policy is a success: in January 2008, President Sarkozy claimed: «au mois de novembre, il y a eu 50% des entreprises de plus de dix salariés qui ont utilisé la disposition en faveur des heures supplémentaires»...à terme «deux tiers des entreprises françaises vont utiliser le dispositif des heures supplémentaires». «Il y a cinq millions de salariés français qui utilisent les heures supplémentaires: c est 5 milliards d euros de pouvoir d achat en plus». 4 / 35

5 overtime hours Average number per quarter of paid overtime hours per full-time employee. Non-agricultural for-pro t sector. Source: Enquête Emploi. 5 / 35

6 Economists are more reluctant to recommend tax exemptions on overtime hours working time is not easily veri able (Mirrlees, 1971) incentives to declare more overtime hours to bene t from tax exemptions (announce that bonuses correspond to overtime hours, pay lower wages on standard hours and higher wages on overtime hours) Aim of our contribution: describe the changes in overtime hours and hours worked before and after the reform evaluate the impact of tax exemptions on hours actually worked 6 / 35

7 Outline of the presentation 1 Working time regulation and overtime hours 2 Theory 3 Data 4 The rupture of October The impact of the reform 7 / 35

8 Working time regulation and overtime hours Overtime hour: any hour worked above 35h per week or 1607h per year for most professionals (cadres), working time is computed in number of days (instead of hours): any day above 218 worked days per year is considered overtime Working time ceiling (when working time is computed in hours): 48h worked per week (44h on average over 12 weeks) 10h worked per day 8 / 35

9 Before Oct. 2007: overtime hours paid at a premium of 10 to 50% depending on rm size, industry agreements and number of hours (50% after 8 hours) overtime hours can also give right to a "compensating rest" instead of payment if collective agreement states so 220-hour ceiling per year except if industry agreement states otherwise overtime hours above ceiling require administrative authorization and give right to an additional "mandatory counterpart in rest" 9 / 35

10 After Oct ("TEPA" law): overtime hours paid at minimum premium of 25% (from 10% previously for rms with 20 employees or less), except in case of collective agreement. employee social contributions on overtime hours earnings: rebate of 21.5% of gross wage no income tax on overtime hours earnings cut in employer social contributions (0.5 euro per hour in rms with more than 20 employees and 1.5 euro per hour in rms with less than 21 employees) 10 / 35

11 Theory Heterogeneous workers Productivity parameter θ > 0 distributed over the population of workers Type-θ worker produces θf (H), f (0) = 0, f 0 > 0, f 00 0, when she works H hours Identical preferences: U(C, L), L = L 0 H, leisure C consumption 11 / 35

12 Legal workweek duration: H w hourly wage on standard hours Tax exemptions on overtime hours = subsidy s e per overtime hours paid to the employee subsidy s f per overtime hours paid to the rm Mandatory over time premium (paid by the employer to the employee): p. Labor cost wh + (pw s f ) max(h H, 0) Earnings of the employee equal to her consumption: C = wh + (pw + s e ) max(h H, 0) 12 / 35

13 Competing rms o er contracts stipulating an hourly wage a length of time to be worked At labor market equilibrium, the contracts maximize the utility of employees under the constraint of null pro t for rms The allocation thus obtained is a Pareto optimum 13 / 35

14 Case 1: Veri able hours Labor market equilibrium: maximization of utility subject to the zero pro t condition: θf (H) = wh + (pw s f ) max(h H, 0). At equilibrium, hours worked by type-θ workers maximize U [θf (H) + (s f + s e ) max(h H, 0), L 0 H]. Should expect positive impact of increases in s f and in s e on hours worked 14 / 35

15 Case 2: Non veri able hours Let us denote by H the hours actually worked H the hours declared to the administration H max the maximal number of hours (negleted so far) The zero pro t condition holds, therefore, at equilibrium, hours worked H and hours declared H by type-θ workers maximize U θf (H) + (s f + s e ) max( H H, 0), L 0 H s.t. H H max 15 / 35

16 Case 2: Non veri able hours The constraint H H max is binding, so that at equilibrium, hours worked by type-θ workers maximize U [θf (H) + (s f + s e ) max(h max H, 0), L 0 H] Increases in s f and in s e decrease hours worked when leisure is a normal good Overall: the impact of tax exemption on working time depends on the veri ability of working hours 16 / 35

17 Summary of predictions about the impact of tax exemptions: If hours are veri able: positive e ects on overtime hours and on hours worked If hours are not veri able: positive e ect on overtime hours and negative e ects on hours worked 17 / 35

18 Data Enquête emploi (no other data set) Advantages of Enquête emploi No other data set with reliable data before and after October 2007 Panel data Many informations on hours 18 / 35

19 Period: 2003q1, 2009q3 Non agricultural and private sector Workers full time (max 72 hours per week) professionals (cadres) whose working time is computed in days (not in hours) are excluded workers on strike, on sick leave, on vocational training... are excluded 19 / 35

20 Data on hours: "During the week Monday to Sunday (dates), how many hours did you put in at your principal job? (Not counting ordinary hours or days o, or exceptional ones, or legal holidays, bridges, make-up time, personal unpaid time o, partial unemployment, training, strike, labor con ict)." 20 / 35

21 About overtime hours: "Have you e ected overtime (or complementary) hours, paid or not?" "How many overtime (or complementary) hours?" "Of these overtime (or complementary) hours, how many are or will be remunerated?" "And how many have created or will create an entitlement to compensatory rest?" 21 / 35

22 The rupture of October 2007 Weekly hours for full time employees in the non agricultural private sector Overtime hours.422 (.015) Hours worked (.040) Before After After Before N (.017) (.019) (.040).062 (.057) / 35

23 Before After After Before Managers, technicians, and the intellectual or artistic professions Overtime hours (.032) Hours worked (.117) Employees paid more than 1.3 times the minimum wage Overtime hours (.032) Hours worked (.083) 23 / 35

24 Before After After Before Laborers Overtime hours (0.38) Hours worked (.065) Employees paid less than 1.3 times the minimum wage Overtime hours (.032) Hours worked (.064) 24 / 35

25 Individuals who have declared overtime hours after October 2007 Before After After Before Managers, technicians, and the intellectual or artistic professions Overtime hours (.216) Hours worked (.370) Deviation (.341) Deviation = 35 hours + overtime hours - hours worked 25 / 35

26 Individuals who have declared overtime hours after October 2007 Before After After Before Laborers Overtime hours (.151) Hours worked (.198) Deviation (.148) Employees paid less than 1.3 times the minimum wage Overtime hours (.213) Hours worked (.213) Deviation (.166) 26 / 35

27 The impact of the reform We compare the evolution of the paid overtime hours and the hours worked for transborder workers, who reside in France but work abroad in bordering regions employees who reside and work in France, near the borders Transborder workers have not bene ted from the detaxation of overtime hours until January / 35

28 Estimate the equation Y ict = b 0 + b 1 (D t F i ) + b 2 D t + b 3 X ct + ν i + ε it Y ict : duration of work or the paid overtime hours of individual i employed in country c on date t. D t : dummy variable equal to zero before 1 October 2007 and to one subsequently F i : dummy variable equal to one for wage-earners employed in France and to zero for transborder workers X ct : share of exports of goods and services in the GDP of country c at date t (quarterly indicators of the OECD) ν i : xed individual e ect 28 / 35

29 A range of events might a ect the paid overtime hours and the hours worked of the two groups, independently of the detaxation of overtime hours: 1 The transborder workers might di er from those who work in France ( xed individual e ects) 2 he economic situation might be di erent in France and in neighboring countries (small areas, controls) 3 Fiscal reforms might in uence the overtime hours and the hours worked in the bordering countries (check no reform) 4 The composition of the two groups of workers might evolve over time, especially in a period of recession (Individual xed e ects + individuals who kept the same job) 29 / 35

30 All workers. Control group of transborder employees. Overtime hours.641 (.299) Hours worked.550 (.458) North North North-East North-East (.298) (.263) (.264) (.457) (.389) (.390) Economic situation No Yes No Yes N treatment N control North: Belgium, Luxemburg, Germany; North-East: Luxembourg, Germany, Switzerland 30 / 35

31 Employees in teaching and the scienti c professions, media professions, arts and entertainment, administrative and commercial managers of rms, engineers and technical personnel of rms Overtime hours.975 (.489) Hours worked.105 (1.197) North North North-East North-East (.494) (.411) (.416) (1.193) (.736) (.742) Economic situation No Yes No Yes N treatment N Control / 35

32 Laborers and wage-earning tradesmen Overtime hours.480 (.450) Hours worked.590 (.485) North North North-East North-East (.447) (.402) (.402).579 (.486).394 (.456).350 (.459) Economic situation No Yes No Yes Number of observations N treatment N control / 35

33 Robustness checks: employees of very small rms and independent workers Alternative strategy of identi cation: select a di erent group of individuals who have not been directly a ected by the reform. Independent workers who do not employ a wage-earner are not a ected by detaxation Compare independents not employing a wage-earner with wage-earners in rms having just one employee. We study separately independent craftmen and employees in craft industry retailers and retail employees 33 / 35

34 Hours worked.065 (.329) All Craft industry Retail and trade.011 (.489).244 (.865) N employees N independents / 35

35 Conclusion The detaxation of overtime hours: no signi cant impact on hours worked positive impact on paid overtime hours which create an entitlement to tax reductions. Detaxation is a measure costly for the public purse, without any ascertained impact on hours worked. Open questions: employment employee motivation 35 / 35