Insee Analyses · July 2021 · n° 66

Financial incentives to work are higher in 2019 than in 2014

In 2019, in metropolitan France, assuming that labor income increases marginally (in the sense of the labor cost), employed individuals benefit on average from 43.5% of this raise, whereas 56.5% are captured by the tax and benefit system, due to the increase in tax and the decrease in social benefits. Half of those individuals in employment face an Effective Marginal Tax Rate (EMTR) above 56%, slightly down from the 2014 median rate of 57%. The proportion of individuals with moderate marginal rates (below 40%) has increased, and extreme values are somewhat rarer: 1.1% of employed people in 2019 have a METR above 100%. For inactive individuals who come back to employment, the median Effective Participation Tax Rate (EPTR) has fallen sharply, from 50% in 2014 to 44% in 2019. Thus, financial incentives to work, as measured by EMTR and EPTR, have increased compared to 2014.

Median effective marginal tax rates vary quite a bit along the income scale, and the tilde shape is less pronounced than in 2014. This change at the bottom of the distribution is especially related to the creation of the Prime d'activité (the French in-work benefit for low-income earners) and its revaluation in 2019.