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The minimum wage versus the earned income tax credit for reducing poverty

Author

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  • Richard V. Burkhauser

    (Cornell University, USA, and IZA, Germany)

  • Kevin Corinth

    (University of Chicago, USA)

Abstract

Minimum wage increases are not an effective mechanism for reducing poverty. And there is little causal evidence that they do so. Most workers who gain from minimum wage increases do not live in poor (or near-poor) families, while some who do live in poor families lose their job as a result of such increases. The earned income tax credit is an effective way to reduce poverty. It raises only the after-tax wage rates of workers in low- and moderate-income families, the tax credit increases with the number of dependent children, and evidence shows that it increases labor force participation and employment in these families.

Suggested Citation

  • Richard V. Burkhauser & Kevin Corinth, 2021. "The minimum wage versus the earned income tax credit for reducing poverty," IZA World of Labor, Institute of Labor Economics (IZA), pages 153-153, September.
    • Handle: RePEc:iza:izawol:journl:2021:n:153
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    References listed on IDEAS

    as
    1. David Neumark & William L. Wascher, 2008. "Minimum Wages," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262141027, December.
    2. Peter Dolton & Chiara Rosazza Bondibene & Jonathan Wadsworth, 2012. "Employment, Inequality and the UK National Minimum Wage over the Medium‐Term," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 74(1), pages 78-106, February.
    3. Congressional Budget Office, 2014. "The Effects of a Minimum-Wage Increase on Employment and Family Income," Reports 44995, Congressional Budget Office.
    4. Congressional Budget Office, 2014. "The Effects of a Minimum-Wage Increase on Employment and Family Income," Reports 44995, Congressional Budget Office.
    5. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 141-198, National Bureau of Economic Research, Inc.
    6. Kai-Uwe Müller & Viktor Steiner, 2013. "Distributional Effects of a Minimum Wage in a Welfare State: The Case of Germany," SOEPpapers on Multidisciplinary Panel Data Research 617, DIW Berlin, The German Socio-Economic Panel (SOEP).
    7. Müller, Kai-Uwe & Steiner, Viktor, 2013. "Distributional effects of a minimum wage in a welfare state: The case of Germany," Discussion Papers 2013/21, Free University Berlin, School of Business & Economics.
    8. Neumark, David & Wascher, William, 2001. "Using the EITC to Help Poor Families: New Evidence and a Comparison With the Minimum Wage," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(2), pages 281-318, June.
    9. Congressional Budget Office, 2014. "The Effects of a Minimum-Wage Increase on Employment and Family Income," Reports 44995, Congressional Budget Office.
    10. Congressional Budget Office, 2014. "The Effects of a Minimum-Wage Increase on Employment and Family Income," Reports 44995, Congressional Budget Office.
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    Cited by:

    1. Brady P. Horn & Johanna Catherine Maclean & Michael R. Strain, 2017. "Do Minimum Wage Increases Influence Worker Health?," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1986-2007, October.
    2. Tim Obermeier, 2023. "Individual Welfare Analysis: A tale of consumption, time use and preference heterogeneity," POID Working Papers 082, Centre for Economic Performance, LSE.
    3. Ms. Enrica Detragiache & Mr. Christian H Ebeke & La-Bhus Fah Jirasavetakul & Koralai Kirabaeva & Mr. Davide Malacrino & Florian Misch & Mr. Hyun Park & Ms. Yu Shi, 2020. "A European Minimum Wage: Implications for Poverty and Macroeconomic Imbalances," IMF Working Papers 2020/059, International Monetary Fund.
    4. Tim Obermeier, 2023. "Individual welfare analysis: A tale of consumption, time use and preference heterogeneity," CEP Discussion Papers dp1954, Centre for Economic Performance, LSE.
    5. Obermeier, Tim, 2022. "Individual Welfare Analysis: What's the Role of Intra-Family Preference Heterogeneity?," VfS Annual Conference 2022 (Basel): Big Data in Economics 264101, Verein für Socialpolitik / German Economic Association.

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    More about this item

    Keywords

    minimum wage; earned income tax credit; working poor;
    All these keywords.

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other
    • J88 - Labor and Demographic Economics - - Labor Standards - - - Public Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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