Low wages and minimum wage, Michel Barnier opens the door to a small revolution in terms of exemptions

MONEY – In terms of salary, we will have mainly retained from Michel Barnier’s general policy declaration, the 2% increase in the minimum wage brought forward by two months. However, in front of the deputies this Tuesday, October 1, the Prime Minister sowed some clues about another door that he could well open to push wages: the end of exemptions on low salaries. “ It has now been shown that our cost reduction system slows down the rise in wages above the minimum wage: we will see it again “, he promised.

The observation is not new, it is even written in black and white in a report submitted in the summer by economists Antoine Bozio and Étienne Wasmer. Quite difficult to decipher for economic philists, this report commissioned by Élisabeth Borne in 2023 actually pleads for a real small revolution.

Quick flashback. In the 1990s, unemployment exceeded 10%. To encourage companies to recruit, Édouard Balladur’s government is proposing to reduce charges on salaries close to the minimum wage by reducing or even exempting certain employer social contributions. Concretely, it lowers the “cost of labor” to encourage hiring.

This constantly expanding system now offers a generous reduction in employer contributions up to 1.6 SMIC, but also a whole host of various and decreasing reductions which may concern salaries up to 3.5 SMIC. In addition to this general scale, there are special measures depending on the region.

“Smicardisation” and “low-wage traps”

In the 1990s, the idea produced positive effects with tens of thousands of jobs created with low wages. But 30 years later, in a highly inflationary context and with unemployment below 10%, economists no longer hesitate to criticize a kind of dogma by talking about “smicardisation” and “low-wage traps”.

In fact, this system insidiously encourages companies to concentrate salaries between 1 and 1.6 SMIC to benefit from the most generous exemptions. According to estimates, to increase by 100 euros net an employee paid 2000 euros gross, the employer pays up to 500 euros since he loses the benefit of the exemptions.

A stagnation in the salary scale reinforced by the Macron bonus since, as INSEE noted in March 2023, it has tended to replace hard and fast salary increases. Especially since it is also exempt from most social contributions, once again to the detriment of the financing of social protection.

Leads for Michel Barnier

How does Michel Barnier intend to shake up this anthill? The Prime Minister did not specify this on Tuesday. On the other hand, he will be able to count on the proposals formulated by Antoine Bozio and Étienne Wasmer

According to The Echoes, Economists who call for a “clean-up” propose, for example, to increase – a little – the cost of labor at the level of the minimum wage by reducing exemptions. The exemption rate on the minimum wage would increase to 36%, compared to 40% today (it was 26% in 2005). Other avenues mentioned: eliminate the boosts for salaries above 1.9 SMIC or 2.5 SMIC but strengthen the reductions for salaries below these thresholds, or include an age criterion (for those under 26 years old, for example).

According to several press sources, Gabriel Attal, who said he wanted to “discriminate France”, had decided when he was at Matignon to work on exemptions between 3 and 3.5 SMIC. It remains to be seen whether Michel Barnier will follow suit.

In any case, one point should not go under his radar. In their report, Antoine Bozio and Étienne Wasmer mention rather positive effects in the event of change – to be modulated according to the sectors and salaries concerned – but also potentially revenues for the state coffers. In other words, a godsend at a time when the political class is alarmed by a possible public deficit of 6%. Every year, exemptions on low salaries represent a gap of several tens of billions of euros.

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