Labour Market Fluidity, Skill Accumulation and the Insurance Effects from Taxes

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This paper uses the Canadian tax reform in the year 2000 to study how changes in the income tax schedule affect workers’ career choices and welfare. Using administrative data, we document a decrease in the mean and progressivity of the tax code and find that the reform decreased occupational mobility. We develop an equilibrium model of occupational choice with human capital accumulation and incomplete markets. In our theory, human capital accumulation and occupational mobility are intimately related. The reform affected labor markets through the incentives to accumulate human capital in an occupation and the insurance mechanism provided by a progressive tax system. A version of the model calibrated to Canadian data repro-duces the observed decline in occupational mobility.

German Cubas is an Associate Professor of Economics at the University of Houston, specializing in macroeconomics, labor economics, and economic development. German holds a Ph.D. in Economics from the University of Iowa and is committed to advancing understanding of labor markets and economic growth. His research explores how risk, taxation, and labor market dynamics influence the allocation of human capital and productivity. Current projects include studies on occupational risk and talent misallocation, the interplay between tax policy and labor market fluidity, and the effects of demographic change on productivity. He also investigates the relationship between education quality and occupational outcomes, as well as how families adjust time use in response to fiscal shocks.

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