The Contribution of Payroll Taxation to Wage Inequality in France

Over the 1967-2015 period, net wage inequality has decreased in France by 25\%, in contrast to the significant increase experienced by most developed countries. Less well known is the fact that labor cost inequality has actually increased by 8 over the same period. We show that, (a) standard demand-side explanations for the rise in inequality apply in France when tested using measures of labor cost (as they should be); (b) reforms to payroll taxation, jointly with increases in the minimum wage, can explain a large part of the decrease in net wage inequality, in the context of increasing market inequality.