When the increases of the minimum wage decrease the labor cost

The aim of this study is to analyze the consequences of the French system of social contribution cuts, targeted on unskilled workers labor cost, which has been introduced since 1993. This system induces labor cost reduction which have three main effects on employment. The first one, a substitution effect, and the second one, an income effect, are well known. The last one, that we have called an assessment effect, is peculiar to targeted tax cuts. We show that the combination of these three effects can explain the trend break in the employment share of unskilled workers that happened in France in the nineties. Therefore, this system can also put a brake on individual wages increases, and they change the way that minimum wage works as a structural policy tool. In the presence of these social contribution cuts, the labor cost of unskilled workers decrease when minimum wage increase.