Terry S. Moon (University of British Columbia; Google Scholar) presents Manufacturing Investment and Employee Earnings: Evidence from Accelerated Depreciation (with Yige Duan (Shanghai Jiao Tong University; Google Scholar)) at Columbia today as part of its Davis Polk & Wardwell Tax Policy Colloquium hosted by Michael Love:

This paper assesses the effects of a tax policy designed to induce manufacturing investment on employee earnings. Following the accelerated depreciation policy in Canada, which lowers the costs of acquiring machinery or equipment, treated firms increase manufacturing investment and employment. However, earnings of incumbent workers at treated firms decrease on average, primarily driven by displaced or low fixed effects workers. Furthermore, both the skill ratio and skill premium increase within firm, providing evidence of skill-biased technological change. Our findings suggest that a tax policy promoting manufacturing investment may contribute to increases in wage inequality both within firm and across firms.

Editor's Note:  If you would like to receive a daily email with links to tax posts on TaxProf Blog, email me here.