In France, a decline of employers’ social contributions targeted on low wages would reduce production costs 5 times more in the hotel and catering business than in aeronautics. This targeted reduction of contributions consists in establishing the employer's contribution to the minimal wage at  0%, and let the rate rise rate with the level of wages, to the threshold of 1.7 times the minimal wage. Above, the rate remains at its current level of 45%. The reduction has the same budgetary impact than a uniform cut of social contribution by 5 points. Calculation is made with unchanged production structure and wages, meaning it applies for the short term If the declines in payroll taxes are modulated according to the wage levels, sectoral differences are indeed very important. Thus, our calculation indicates that greater tax cuts on low skilled labor would benefit more to non tradable than tradable sectors: on average, the production costs would fall, respectively, by 1.9% and 1.25%.
Among the non tradable sectors, personal services would be the main beneficiaries. Their production costs would decrease by 3.4%. Among the tradable sectors, industry of leather and footwear as well as the textile industry would experience a drop in costs by around 3%. But these industries are exceptions, with regard to the limited amount of the skilled workforce they employ. Let's mention that considering the current price differentials, this decline would probably not alter the conditions for competition with emerging market economies.
The sectoral impact of lower contributions is often considered without taking into account the incidence of intermediate input. In reality, each sector benefits not only directly from its own lower wage costs, but also, through the adjustment of production prices of its suppliers, from the decline of costs in other sectors. Thus, aeronautics which employs a very qualified workforce, but uses also intermediate products by mainly low skilled work sectors (cleaning services, for example) would benefit indirectly of falls in wage costs of unskilled labor.
Our calculation takes into account this effect, which tends to cut sectoral differences. These remain nonetheless significant as already mentioned in a few examples and as shown in Figure below. In total, such a reform, namely a targeted "social VAT" would improve competitiveness of sectors intensive in low qualified labor in a short term, but the gains to expect in sectors rather intensive in capital and skilled labor are more limited. Yet these sectors form the core of the French specialization.
Finally, beyond this redistribution among sectors, the reform induces some redistribution within sectors. Thus, the retailing sector benefits broadly enough from a targeted reform, with an expected decline of cost by 4%. But this decline is concentrated, in fact, in volume retailing which employs a large unskilled workforce. In contrast, small retailers are not concerned by these gains if the reform does not affect independent workers. The result is an important bias in favor of  volume retailing.