Personal Taxes and Firm Skill Hiring: Evidence from 27 Million Job Postings

Abstract

Using big data on U.S. job postings, we show that firms increase skill requirements when hiring workers in states that cut personal income taxes. We trace a significant driver of this effect to companies’ reallocation of skilled job postings across states based on tax differentials. The tax-induced upskilling is observed within occupations and is more pronounced for high-skill positions within firms. It is accompanied and amplified by concurrent increases in information technology expenditures at local-level establishments. In characterizing the mechanism at play, we show that job upskilling is triggered by tax changes affecting middle- and upper middle-class workers. It is pronounced for high-growth firms, for firms in tradable industries, and in urban areas, but it is mitigated among profitable firms. A narrative-based analysis helps us establish causal inferences. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.01211 .