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Research ArticleArticles

Compensating Differentials and Income Taxes

Are the Wages of Dangerous Jobs More Responsive to Tax Changes than the Wages of Safe Jobs?

David Powell
Journal of Human Resources, October 2012, 47 (4) 1023-1054; DOI: https://doi.org/10.3368/jhr.47.4.1023
David Powell
David Powell is an economist at RAND. He is grateful to David Autor, Arthur Campbell, Tom Chang, Jesse Edgerton, Michael Greenstone, Tal Gross, Jon Gruber, Jerry Hausman, Helen Hsi, Konrad Menzel, Whitney Newey, Amanda Pallais, Jim Poterba, Nirupama Rao, Hui Shan, and Carmen Taveras for their comments
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Abstract

Income taxes distort the relationship between wages and nontaxable amenities. When the marginal tax rate increases, amenities become more valuable as the compensating differential for low-amenity jobs is taxed away. While there is evidence that the provision of amenities responds to taxes, the literature has ignored the consequences for job characteristics which cannot fully adjust. This paper compares the wage response of dangerous jobs to the wage response of safe jobs. When tax rates increase, we should see the pretax compensating differential for on-the-job risk increase. Empirically, I find large differences in the wage response of jobs based on their riskiness.

  • Accepted January 2012.
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Journal of Human Resources: 47 (4)
Journal of Human Resources
Vol. 47, Issue 4
2 Oct 2012
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Compensating Differentials and Income Taxes
David Powell
Journal of Human Resources Oct 2012, 47 (4) 1023-1054; DOI: 10.3368/jhr.47.4.1023

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Compensating Differentials and Income Taxes
David Powell
Journal of Human Resources Oct 2012, 47 (4) 1023-1054; DOI: 10.3368/jhr.47.4.1023
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