Local Taxes and the Demand for Skilled Labor: Evidence from 27 Million Job Postings

48 Pages Posted: 2 Jul 2019

See all articles by Murillo Campello

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Janet Gao

Indiana University - Kelley School of Business

Qiping Xu

University of Illinois Urbana Champaign

Date Written: July 1, 2019

Abstract

Using big data on the near-universe of US firms' job postings, we document measurable, negative effects of local personal income taxes on the level of education, experience, and professional skills demanded by firms when hiring workers (downskilling). Tax-induced downskilling is identified both at the county level and at individual firms' local branches. It is solely driven by changes in high-income earners' tax rates. Multi-state firms internally reassign their hiring of low- vs. high-quality workers according to local personal income tax changes. This dynamic is more pronounced in industries that rely less on skilled labor and on local resources in their production processes, yet mitigated in firms' headquarter states and states that account for a large fraction of firm sales. Firms also cut IT investment and eventually exit states that increase personal taxes. Our findings point to a "brain-drain" in states with high personal income taxes, showing how those taxes influence the local demand for human capital and labor market composition.

Keywords: State personal income taxes, Skilled labor, Human capital, Firm organizational form

JEL Classification: E24, J23, G31, H24

Suggested Citation

Campello, Murillo and Gao, Janet and Xu, Qiping, Local Taxes and the Demand for Skilled Labor: Evidence from 27 Million Job Postings (July 1, 2019). Kelley School of Business Research Paper No. 19-35. Available at SSRN: https://ssrn.com/abstract=3392080 or http://dx.doi.org/10.2139/ssrn.3392080

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Qiping Xu (Contact Author)

University of Illinois Urbana Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

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