Economic Stimulus at the Expense of Routine-Task Jobs
46 Pages Posted: 20 Nov 2017
Date Written: November 15, 2017
Do investment tax incentives improve job prospects for all workers? Using two massive establishment-level datasets on occupational employment and computer investment, we study the causal effect of a major job-creating tax incentive for investment on labor outcomes. Specifically, Section 179 of Internal Revenue Code allows firms to deduct limited amount of qualifying equipment investments instantly rather than following the standard depreciation schedule, hence lowering the effective price of equipment investment for eligible businesses but not for ineligible ones. By exploring the variation in states' Section 179 deduction limits for state taxes, we find that (1) eligible firms purchase more computers and hire more nonroutine-task labor shortly after states increase the deduction limits; (2) however, these firms significantly reduce their routine-task employment starting from one year after the limit increases; (3) due to these opposite effects on two distinct labor groups, the effect on total employment is insignificant; (4) none of the above effects are detected among ineligible firms. Our results highlight the importance of heterogeneous worker skills for policy outcomes.
Keywords: Investment Tax Incentives, Labor-Technology Substitution, Section 179
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