Cross-State Job Stealing

Abstract

Using a comprehensive dataset of U.S. job postings, we study how state R&D tax credits influence firms' geographic allocation of talent recruitment. We find that a firm's local demand for R&D labor significantly decreases with R&D tax credits offered by other states in which the firm currently operates. This relation has a causal interpretation because (i) we control for the fixed effects of other states; (ii) the reduced local recruitment occurs after sharp increases in out-of-state R&D tax credits but not before; and (iii) we find no corresponding decrease in non-R&D recruitment. This negative spillover reflects a form of "job stealing" in which tax incentives in one state draw skilled labor demand away from others. The substitution effect is more pronounced for R&D-intensive firms and financially constrained firms, as well as for situations in which other states offer abundant talent supply, thus making it easier to meet increased labor demand there. We also observe a similar spillover effect on inventor counts and patenting activity, both of which decline with out-of-state R&D tax credits. Overall, our findings highlight the redistributive impact of R&D tax credits on the geography of firms' demand for innovation labor.

Keywords: R&D, Tax Credits, Job Postings, Labor Demand, Inventors