Program > Papers by speaker > Monin Rémi

Prices response to a massive labor cost cut Evidence from French firm-level data
Rémi Monin  1, 2@  , Milena Suarez Castillo  3, *@  
1 : Institut National de la Statistique et des Etudes Economiques  (INSEE)
Institut national de la statistique et des études économiques (INSEE)
88, avenue Verdier 92120 Montrouge -  France
2 : Centre de Recherche en Économie et Statistique  (CREST)
Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz], Ecole Polytechnique, École Nationale de la Statistique et de l'Administration Économique, Centre National de la Recherche Scientifique : UMR9194, Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz], Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz], Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz], Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz], Ecole Nationale de la Statistique et de l\'Analyse de l\'Information [Bruz]
5, Avenue Henry Le Chatelier91120 Palaiseau -  France
3 : Insee-Crest
Institut national de la statistique et des études économiques (INSEE)
* : Corresponding author

We use a major labor cost cut of several percents in the form of a tax credit to infer the price response to a drop in labor marginal cost, using firm-level data. We account for common elements determining firm-level prices with a factor model at the sector level. Thus, we model within-sector shocks that affect firms with an individual and permanent loading. By controlling for unobserved heterogeneity and disaggregated prices of input, we provide a short-term counterfactual to assess the impact of the tax credit on prices. Our results suggest that not all sectors are passing the tax benefit on their clients : we find that the sectors for which significant pass-through arise are those having the highest share of eligible labor in total cost, i.e. mostly low-skilled and labor-intensive services. In addition, the pass-through is a lengthy process : significant effects are measured one to two years after the announcement of the policy.


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