Treasure Islands, Real Jobs? Workers and Anti-Avoidance Policies in a Tax Paradise

This paper offers the first detailed characterization of the labor market in a tax paradise and the first assessment of how a reform aimed at discouraging international tax avoidance affects workers in such a location. Our findings reveal that incumbent workers, who were relatively few compared to firms’ profits, were highly educated, performed specialized tasks, and benefited from a wage gap, particularly large at the top. Immediately after the reform announcement, several workers exited. Stayers had a higher probability of working for several firms simultaneously and experienced wage increases of around 8% two years after the reform, representing a small cost relative to firms’ tax benefits. New workers who moved post-reform earned wages that were, on average, 30% lower than incumbents and were more likely to be on temporary contracts. These results provide valuable insights into policies aimed at increasing economic substance in low-tax jurisdictions.