A new paper by experts at Wharton and elsewhere has set to rest “widespread concerns” that increased capital investment in equipment is at the cost of worker employment. In the study of tax incentives that boost capital investment in equipment at U.S. firms between 1997 and 2011, the experts found that such investment resulted in matching employment growth, although it did not stimulate wage or productivity growth.
“People have been worried that with corporate tax breaks for investment, we’ve made machines relatively cheaper than workers, and that we will switch from having more workers to having relatively more machines,” said Wharton finance professor Daniel G. Garrett, who co-authored the paper, “Capital Investment and Labor Demand.” The study used bonus depreciation as an example of a tax incentive, or as “a shock to the after-tax cost of physical capital.”
