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Using Alsace‐Moselle Local Laws to Build a Difference‐In

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Using Alsace‐Moselle Local Laws to Build a Difference‐In 488 Chemin/Wasmer In 1998 and 2000, following laws known as Aubry I (which encouraged firms with over 20 employees to reduce working time) and Aubry II (which made working time reduction mandatory), France changed its working time regulation from theofficial 39 hours to 35 hours. This 10% reduction was implemented with no changetothe net monthly wages of Using Alsace-Moselle Local Laws to workers who were employed at this time. Theimplementation of this regulation constitutes a relatively far-reaching and unique experiment Build a Difference-in-Differences from which much can be learned about theunderlyingfunctioning of labor markets in general.1 Theexperience also generated considerable de- Estimation Strategy of the Employment bate in several European countries. Effects of the 35-Hour Workweek Despite the importance of this shock and thepolitical controversy sur- rounding it, there have been few studies based on microeconomic evidence Regulation in France that evaluate theimpact of a working time reduction in France. In our view, this is primarily due to theabsence ofproper identification strategies. Matthieu Chemin, University of Quebec at Montreal Unlikethe United States or Canada, France lacksafederal structure; therefore, most laws anddecrees apply to the entire territory,which makes and CIRPEE very problematic theidentification of appropriate control groups involv- ingfirms or workers unaffectedbytheexperiment. Moreover, a reduction Etienne Wasmer, Sciences-Po Paris and OFCE in working time (hereafter RWT) has been accompaniedby payroll tax exemptions, smoothing ofhours over the year (annualisation in French), and a number of specific collective labor agreements that, together, add to the difficulty ofdisentangling thespecificeffect of RWT. France’s 1998 implementation of the 35-hour workweekhas been The goal of this paper is to provide a methodology that overcomes this one of the greatest regulatory shocksonlabor markets. Few studies identification problem bymaking use of arelativelyunknown French evaluate the impact of this regulation because of a lack of identifi- cation strategies. For historical reasons due to theway Alsace-Moselle specificity. France’s territorial organization is less centralized andho- was returned to France in 1918, theimplementation of France’s 35- mogeneous than is generally assumed. For example, for historical reasons, hour workweek was less stringent in that region than in the rest of the region of Alsace and the subregion, hereafter named dee´partement, of the country,which is confirmedbydoubleand triple differences. Yet Moselle have laws that differ from those of the rest of therepublic. Both it shows no significant difference in employment with the rest of areas belonged to Germany from 1870 to 1918 and, upon rejoining France, France, which casts doubtontheeffectiveness of this regulation. retained some favorableelements of the German legal system. In partic- ular, two holidays that are unrecognized elsewhere in the country are preserved in these areas: Saint-Etienne (Saint Stephen’s Day, December I. Introduction 26) and Vendredi Saint (Good Friday). However, when the RWT took The experience of working time reduction in France has been one of effect in 1998 and 2000, firms in Alsace-Moselle decided that bothholidays the most siggypgnificant regulatory shocksimposed on an ygyylarge economy. would be counted as part of the working time reduction. Therefore, the application of theRWThas been less favorableinAlsace-Mosellethan in We would liketothank Philippe Aghion, JohnAbowd,Olivier Blanchard, the rest of France, at least until employee recourses began to be examined Pierre Cahuc, Bruno Cree´pon, Patrick Feeve, Jean-Paul Fitoussi, Francis Kramarz, by various legal courts. Laurence Grisey-Martinez, Chris Pissarides, Christopher Taber, and Philippe Weil for their remarksand comments. Contact the corresponding author, Matthieu 1 Chemin, at [email protected]. Despite the official obligation that wages not be cut in response to a working time reduction, theory indicates that newly hired workers must have faceda [ Journal of Labor Economics, 2009, vol. 27, no. 4] decline in monthly wages, attenuating the law’s impact. Similarly, fringe benefits ᭧ 2009 by The University of Chicago. All rights reserved. to already employed workers mayhave been renegedfollowing the law’s appli- 0734- 306X/2009/2704- 0001$10.00 cation in order to restore hourly wages. 487 35-Hour Workweek in France 489 490 Chemin/Wasmer This is the basis for our identification strategy. We will compare the the 35-hour law across regions did not have any relative employmentt evolution of hours, employment, and wages in France (by which we mean impact. France without Alsace-Moselle) and in Alsace-Moselle. Using data from Enqueˆte Emploi, a Frenchlabor force surveyfrom 1996 to 2003, we are II. Reduction in Working Time able to use a standarddifference-in-differences approach and investigate A. 35 Hours: The Law the differential impact of RWT in France and in Alsace-Moselle. However, this is not as straightforward as it seems: Alsace and Moselle From a legal viewpoint, France’s switch from a 39-hour to a 35-hour have the particular distinction of being the only areas in France that share workweek in 2000 was a complex process, implemented after a lengthy a border with Germany.This is a serious issue in our identification process: negotiation process and severallitigations. Two laws were proposedby the Jospin government, a coalition of socialists, communists, and the during the period under investigation, Germanyfaced arelatively strong Green Party,and were voted on in Parliament. The first, on June 13, 1998 recession that threatened to spill over into Alsace-Moselle. Thus, a simple (known as the Loi Aubry I), was designed to provide firms with strong comparison of these areas with the rest of France is likely to bespurious. incentives to negotiate working time reductions of at least 10% at the In particular, it is possiblethat a rise in relative unemployment in Alsace- firm or industrylevel. Incentives for such reductions were numerous. Moselle could simply bethe resultof Germany’s recession dispropor- Foremost, firms obtained asubsidy for each worker in the firm if they tionately affecting northeastern France. raised employment by at least 6% following a decrease in working time For this reason, we will mostly present triple difference (DDD) esti- and an even larger subsidy for an employment increase over 9%. This mates, wherein theadditional reference groups will consist offirms or subsidy was quite large (between i800 and i1,500 per worker) andde- occupations unaffectedbythe RWT (i.e., firms offewer than 20 employees gressive over time. It was not applicabletoagreements signed after the or independent workers). At this point, it is interesting to note that by second semester of 1999 for firms with over 20 employees (a delay of using a DDD approach,wefind that workinghours in Alsace-Moselle 1–2 subsequent years was granted to smaller firms) in order to speed up rose relative to the rest of France by approximately the amount predicted the transition to the new legal working time. Finally, as an incentive for by theory, despite the fact that Germany was concurrently experiencing firms to reduce working time promptly,the Loi Aubry Ispecified that a recession. This makes us reasonably confident that the difference in the in 2000 (for firms with over 20 employees) or in 2002 (for smaller firms), number of working hours in Alsace-Moselle is exogenous to the German the 35-hour workweekboth would be irreversibleand would be uni- economic cycleand is instead attributabletolegislative differences within formly applied to all firms, even those not having signed an agreement. France. The secondlaw, passed January 19, 2000 (known as the Loi Aubry II), Our paper is organized into six sections. Section II presents France’s enforced the Loi Aubry I by setting theofficial working time at 35 hours RWT experiment and aselective literature review of ex post evaluations per week in all firms, modifying all relevant articles of theCode du Travail. based on eithermicroeconomic data ormacroeconomic models. All such A decrease in working time from 39 hours to 35 hours represents an existing studies have ignored the France/Alsace-Moselle divide. We will 11% reduction in hours workedper week. However, this does not nec- then discuss thespecificity of theAlsace-Moselleexperiment. Section III essarily imply that, at a fixed weekly wageand in theabsence of subsidies, presents a model with which we discuss a number of econometric issues, firms faced an 11% increase in hourly labor costs. Firms also had various such as theselection offirms that entered into early RWT agreements. adjustment mechanisms. For example, one such mechanism was overtime. Section IV provides greater detail of our identification strategy. Since the Before the reform, firms were required to pay acompulsory overtime existence of regionaldifferences is typically ignored in examinations of premium of 25% for the first 8 hours over 39 and then a 50% premium Frenchdata, we devote Section V to providingdetailed evidence that the from then onward.Following thereform, the activation point for the strategy is valid.Inparticular, we show that workers in Alsace-Moselle overtime premium was shifted to 35 hours, and a second activation point worked more relative to the rest of France: the DDD coefficients are was introduced at 43 hours. Figure 1 represents thewage profile before positive and significant over therelevant period. Further, thetheoretical and after the 2000 reform in firms of more than 20 employees until 2003 coefficient (16 hours per year, i.e., 0.35 hour per week worked)isalways (when the overtime premium was eventually reduced; see below). in the confidence interval. In Section VI, we employ theidentification For hourly wages earnedby employees in these firms working 39 hours strategy to measure theeffect of RWTonemployment probability and before and after the reform, labor costs increased by (4 # 0.25)/39 p unemployment incidence. We observe that the differential application of 2.5%. For employees working 43 hours before and after the reform, labor 35-Hour Workweek in France 491 492 Chemin/Wasmer Fig.
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