Job search under changing labour taxes

• Identifies the impact of marginal tax rates and firms’ pay policies on job-to-job turnover. • Paying higher wages reduces job-to-job separation rates. • This relationship is weaker when income taxes increase. • This implies higher taxes reduce search activity. • Our study for Norway confirms findings in the only other study which is for the United States. Workers’ job mobility decisions are related to firms’ wage policies but also depend on tax schedules. Using Norwegian population-wide administrative linked employer-employee data for 2010-2019, we study how the job-to-job turnover of employees is affected by marginal taxes and firms’ pay policies, thus drawing inferences on job search behaviour. By paying higher wages, job-to-job separation rates drop, but this negative relationship is weakened when income taxes increase, consistent with higher taxes reducing search activity. However, consistent with theory, the tax effect is smaller where workers receive performance bonuses.