The Impact of Social Security Contributions on Earnings: Evidence using administrative data in France, Germany, the Netherlands and the UK

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Faced with large budget deficits and increasing costs of welfare spending, many countries have increased, or are considering increasing, Social Security Contributions (SSCs). At the same time, employers' SSCs have been blamed for being detrimental to employment, leading countries to reduce these and increase other taxes. With such important issues in mind, this project aims at providing new evidence on the effects of SSCs on earnings, using large administrative panel data in France, Germany, the Netherlands and the UK. These large administrative databases have never been used in a cross-country analysis and provide a chance to significantly improve our knowledge of the impact of payroll SSCs both at the micro and macro level. In particular we address two related questions: the effects of SSCs on behaviour (labour supply/demand responses) and the economic incidence of SSCs (i.e. who bears the burden of them in the form of lower net income). We plan to systematically use variation in SSC rates and changes in the structure and rates of SSCs to identify short-term impacts on earnings, distinguishing effects according to who is nominally liable for the tax (i.e. the employee or the employer) and whether the amount of SSCs is linked to the amount of benefits received. We will also update evidence on the long-run incidence and behavioural effects of SSCs. Our empirical approach consists not only of assessing the impact of the particular reforms studied. We will also take a more structural approach that seeks to explain and understand the mechanisms involved so that we can anticipate and simulate the effects of other reforms, paying attention to the role that different labour market institutions (such as wage bargaining) may play in affecting the behavioural impact and incidence of SSCs.