No. 171: The Effects of Tax Reform on Labor Demand within Tax Departments

This study examines the effect of a major tax reform on firms’ demand for internal tax department employees. Specifically, we analyze the effects of the Tax Cuts and Jobs Act (TCJA) on the number of job postings and skill profiles for tax department positions in large U.S. firms. Understanding how tax reform affects the demand for tax employees is important as it quantifies potential compliance costs and provides insights into how firms adjust their tax compliance and planning capacity in response to tax reforms. Additionally, our findings provide insights into the evolving skills required in the context of technological change and intensifying competition for talent. To address our research question, we employ textual analyses and machine learning techniques to identify and classify approximately 30,000 tax-related job postings from 1,337 firms from 2015–2020. Using a difference-in-differences research design, we find a 42% increase in the number of tax-related job postings in the three years following the TCJA’s enactment. This translates into a 26% increase in the size of the average tax department. We find that this effect is concentrated in the second year after the reform, consistent with hiring frictions. Additionally, we find that firms seek tax department employees for both compliance and planning roles, with a higher demand for compliance personnel—particularly those with specialized tax knowledge, advanced technology competencies, and data analysis skills.