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Who Does the Earned Income Tax Credit Benefit? A Monopsony View

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Abstract

The Earned Income Tax Credit (EITC) targets refundable tax credits to low-income workers, incentivizing labor supply and raising the incomes of tens of millions of Americans. One possible consequence of subsidizing low-wage work, however, is to reduce wage growth. A monopsony model of the EITC is developed in order to analyze its impacts on labor market outcomes, which are identified by exploiting variation in state EITC supplements. A first set of results focused on the food service industry find that the EITC increases employment and reduces turnover among young women. Further results suggest that the EITC reduces wages for workers without college degrees. These findings prompt a reconsideration of the redistributive effects of the EITC, particularly for groups like older low-wage workers who face slower wage growth as a result of the policy but do not receive the same level of benefits on average

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  • Aida Farmand & Owen Davis, 2021. "Who Does the Earned Income Tax Credit Benefit? A Monopsony View," SCEPA working paper series. 2021-02, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    • Handle: RePEc:epa:cepawp:2021-02
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    Cited by:

    1. Teresa Ghilarducci & Aida Farmand & Bridget Fisher & Siavash Radpour, 2021. "How Expanding EITC Will Benefit 1.5 Million Low-Income Older Workers," SCEPA policy note series. 2021-02, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.

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    More about this item

    Keywords

    Retirement income; Earned Income Tax Credit; EITC; Older worker labor supply; low-wage;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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