Taxing Labor: Firm R&D, Automation and the Labor Share

Hyejin Ku, Schönberg, Uta and Ragnhild Schreiner

No 21695, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper provides new micro-level evidence on how labor taxation shapes firm behavior, exploiting an EU-mandated payroll tax reform in Norway. Combining administrative and survey data, we find that firms facing larger tax increases sharply cut employment but also increased R&D spending, implemented labor cost-saving innovations, and adopted more automation. While these responses led to improvements in labor and total factor productivity within the firm, the firm’s labor share fell. These effects persisted even after the tax hike was unexpectedly reversed three years later, suggesting a lasting shift toward more capital-intensive production in response to higher labor costs.

JEL-codes: H25 H32 J23 J32 O31 O32 (search for similar items in EconPapers)
Date: 2026-07
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