Taxes and Technological Determinants of Wage Inequalities: France 1976-2010.

Summary This paper makes two simple points. First, labour demand depends on product wage or labour cost. Hence, demand-side explanations for the rise in inequalities such as skill-biased technical change and job polarization should be tested using data on labour cost and not net wage or posted wage. Contrary to previous studies, we find evidence of skill-biased technical change in France when we measure wage inequality in terms of labour cost. In that respect, France is no exception. Second, the French case provides a clear evidence that changes in taxation can have very significant effect in converting market inequalities into consumption or net wages inequalities. In France, net wage inequalities have decreased by about 10%, while labour cost inequalities have increased by 15% over the 1976-2010 period. This fact provides support both for the supporters of the skill-biased technical change explanations of the secular increase in wage inequalities, as well to those who believe that institutions could have significant impact on inequalities in disposable incomes.