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The Optimal Policy Combination of the Minimum Wage and the Earned Income Tax Credit

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  • Malul Miki

    ()
    (Ben Gurion University)

  • Luski Israel

    ()
    (Ben Gurion University)

Abstract

This paper evaluates the consequences of minimum wage (MW) and earned income tax credit (EITC) in a model with heterogeneous costs of investment in human capital. Our model studies the effects of a MW and an EITC on employment, productivity, and total output for two types of groups: those with a low cost of acquiring human capital and a long horizon of earnings (Type Ys); and those with a high cost of acquiring human capital and a short horizon of earnings (Type Os). We assume that Type Ys consider investing in human capital while Type Os have a certain predetermined level of human capital and do not consider changing it. Our model suggests that a government might consider imposing a MW exclusively for Type Y individuals and an EITC exclusively for Type O individuals. Some of the best effects of each policy would therefore be obtained and some of the worst consequences would be avoided.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 9 (2009)
Issue (Month): 1 (November)
Pages: 1-24

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Handle: RePEc:bpj:bejeap:v:9:y:2009:i:1:n:51

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Cited by:
  1. Miki Malul, 2012. "A Dynamic Brain Drain in Peripheral Regions," ERSA conference papers ersa12p230, European Regional Science Association.
  2. repec:eee:jebusi:v:67:y:2013:i:c:p:67-76 is not listed on IDEAS
  3. Ann-Sofie Kolm & Mirco Tonin, 2012. "In-Work Benefits and the Nordic Model," CEU Working Papers 2013_1, Department of Economics, Central European University, revised 14 Dec 2012.
  4. Carter Thomas J., 2011. "Training and Turnover with Equilibrium Unemployment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-23, March.
  5. Miki, Malul & Yuval, Fany, 2011. "Using education to reduce the wage gap between men and women," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 40(4), pages 412-416, August.

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