Minimum Wage and Employment: The French Case Revisited

Abstract

The cost and the profitability of production, the productive combination are linked to the minimum wage, which is in that respect detrimental to employment. However, a minimum wage is favourable to employment when a better bargaining position is gained in a context of a monopsone on the labour market, when improvement in the motivation of the workers is effective and through macroeconomic looping by income if necessary by depressed demand for goods. The theoretical conclusions on the effect of the minimum wage are thus ambiguous. Previous studies of the employment effect of the minimum wage rely on several methods: macroeconomic, the measure of the sensitivity of employment to wages, the aftermath of episodes of sharp increase of the minimum wage or last the analysis of the missing part of the distribution of the wages, due to he minimum wage constraint. The present study reconsiders this latter kind of analyses on several respects: by taking into account possible bias of selection, due not only to the individual behaviour, but also to the availability of vacancies, by looking at the supply of labour within the household, by a more detailed analysis of the role of the diploma in the wage claims. A model of wages with endogenous selection is thus estimated on French individual data. The results reveal a negative effect of the minimum wage on employment of about 100 000 people (in a range of 20 000 to 170 000), which is a more limited estimation than what was proposed previously, and which is far less than what would result of an hypothetical improvement of economic activity.