A calibrated model of the effect of the CICE on employment.

Summary In this paper, we attempt to compare the potential employment and wage structure effects of the Competitiveness and Employment Tax Credit (CICE) and additional targeted contribution reductions, similar in format to those in force today. To this end, we build a search and matching model of the labor market, with heterogeneous employees and firms, productive complementarities, and wage negotiations. Individuals can be inactive, job seekers or employees. They may be looking for a job and receive offers when they are already working. Our theoretical contribution, as part of a broader research agenda, is to include both a minimum wage and wage taxation in such a model. The model is calibrated in different possible ways in the stationary state using employment statistics provided by INSEE and wage statistics calculated from the annual social data declarations (DADS). It is then used to perform counterfactual simulations. These simulations indicate that, at equivalent cost, the effect of the CICE on employment is systematically more limited than the effect of targeted contribution reductions. We conclude that a model that only takes into account the labor market but is "as rich as possible" does not allow us to estimate significant effects of the CICE on employment.