Personal Taxes and Labor Downskilling: Evidence from 27 Million Job Postings

Using big data on the near-universe of U.S. job postings, we document negative effects of local personal income taxes on the level of education, experience, and technological skills required by firms when hiring workers (downskilling). Tax-induced downskilling is identified both at the county level and at individual firms’ establishments. It is driven by taxes on middle-class earners. Multi-state corporations internally reassign their hiring of low- vs. high-skill workers according to local personal tax changes. Together with worker downskilling, firms also cut IT investment in localities that hike personal taxes. Our results suggest that corporations amplify the “brain drain” effect induced by personal taxes.