Wednesday, February 2, 2011

Heures sup

Did the detaxation of overtime, a key Sarkozyan reform intended to implement the campaign slogan "travailler plus pour gagner plus," have the desired effect? Economists Pierre Cahuc and Stéphane Carcillo say no:

In order to evaluate the impact of the de-taxation, in recent research (Cahuc and Carcillo 2011) we compare the evolution of the paid overtime hours and the hours worked of two groups of individuals, one of which is affected by the reform and the other not. The treatment group is composed of employees who reside and work in France. The untreated group is composed of employees who reside in France but work abroad, in regions adjoining the French border. These transborder workers (travailleurs frontaliers) did not benefit from the de-taxation of overtime hours. Hence, if the reform really did have the effects anticipated, the overtime hours and hours worked of transborder workers ought to have decreased relative to other French employees living in the same region, as long as no other events have modified the relative hours of the two groups of employees. In order to ensure the pertinence of the results obtained, we take into account the differences in economic situation between countries, the evolution of regulatory frameworks on both sides of the borders, as well as the differences between the two groups of employees studied.
Ultimately, we find that the overtime hours of employees working in France rose, relative to those of the transborder employees, starting in the fourth quarter of 2007. This rise in overtime hours applies solely to highly-qualified employees, who have many ways to manipulate the overtime hours they declare in order to achieve tax optimisation, because their work hours are particularly difficult to verify. Conversely, we detect no difference in the evolution of hours worked, whatever category of employee is considered. These results suggest that the upshot of the de-taxation of overtime hours has essentially been tax optimisation, with no real impact on the length of time worked. These results are confirmed by comparing the evolution of the work duration by employees in very small firms and that of independent workers who have not been directly affected by the de-taxation of overtime hours.
Thus, the de-taxation of overtime hours appears not to have fully met its aim. While the wage-earners concerned have indeed benefited from a spike in their remuneration thanks to de-taxation, that has not, on average, come about through working more. De-taxation is costly to the public purse, without any ascertained impact on hours worked.


Passerby said...

As a frontalier myself, I find this study very disputable. If the idea may sounds good on paper, in my opinion the main assumptions are just plainly wrong.

First of all, the vast majority of frontaliers pay their income taxes in France and ARE exonerated on their overtime. The authors' assumption would only hold if they restricted their analysis to the fraction of workers in Luxembourg, Geneva & Monaco.

La France dispose de régimes frontaliers, prévoyant une imposition des rémunérations des travailleurs
frontaliers salariés dans leur Etat de résidence, avec certains Etats limitrophes (Allemagne, Belgique, Espagne,
Italie et cantons suisses de Berne, Soleure, Bâle-Ville, Bâle-Campagne, Vaud, Valais, Neuchâtel et Jura). Les
travailleurs frontaliers salariés couverts par ces régimes et résidant en France sont, au titre de leur rémunération,
imposables à l’impôt sur le revenu en France selon les règles de droit commun des traitements et salaires.
Par suite, la rémunération des heures supplémentaires effectuées par les frontaliers est exonérée d’impôt
sur le revenu en application des dispositions de l’article 81 quater du CGI.

For the argument's sake, let's assume that the authors only considered non-exonerated workers, and that they had a statistically significant pool (I doubt both points).
As they state in their article, they can measure the impact of the overtime only "as long as no other events have modified the relative hours of the two groups of employees."

This point doesn't hold either. In bordering countries, the frontaliers are often "une variable d'ajustement". They are the first that the local economies let go when a crisis hits, especially temps & employees in the construction, hotel, restaurant businesses. This is particularly true in Switzerland & Luxembourg. Plenty of data can be found on the web, but this is also shown in INSEE studies:

When I started reading I thought that the the authors seemed to completely ignore the situation of their chosen reference group.
However, when they did find a difference, they simply brushed it aside. Of course, highly-qualified people must have more ways to receive undeclared revenue, than employees in restaurants or construction... To me that's plain & simple intellectual dishonesty.

I have no idea if the government's overtime policy had any effect. But we're not going to find out with this kind of paper.

Passerby said...

On the economic comparability aspect, I forgot to mention in the case of Switzerland the large fluctuations on the EUR/CHF exchange rate over the past years.

On Feb 2nd 2010, my compensation is about 20% higher than on the same day in 2007 simply because of FX.
Of course this is not a significant impact that so-called economists should be taking into account when analyzing my purchasing power...

Arthur Goldhammer said...

Your points are well-taken. I think the authors are trying to emulate the Card-Krueger study of the effects of minimum wage legislation in the US, which used a similar "natural experiment" methodology. But the assumptions they make here are problematic, as you point out. Thanks for the information. I was already skeptical; now I'm frankly dubious.