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Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era

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Author Info

  • Neumark, David

    ()
    (University of California, Irvine)

  • Wascher, William

    ()
    (Federal Reserve Board)

Abstract

We study the effects of minimum wages and the EITC in the post-welfare reform era. For the minimum wage, the evidence points to disemployment effects that are concentrated among young minority men. For young women, there is little evidence that minimum wages reduce employment, with the exception of high school dropouts. In contrast, evidence strongly suggests that the EITC boosts employment of young women (although not teenagers). We also explore how minimum wages and the EITC interact, and the evidence reveals policy effects that vary substantially across different groups. For example, higher minimum wages appear to reduce earnings of minority men, and more so when the EITC is high. In contrast, our results indicate that the EITC boosts employment and earnings for minority women, and coupling the EITC with a higher minimum wage appears to enhance this positive effect. Thus, whether or not the policy combination of a high EITC and a high minimum wage is viewed as favorable or unfavorable depends in part on whose incomes policymakers are trying to increase.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2610.

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Length: 38 pages
Date of creation: Feb 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2610

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Keywords: minimum wage; Earned Income Tax Credit; welfare reform; employment;

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Cited by:
  1. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2009. "Do minimum wages raise employment? Evidence from the U.S. retail-trade sector," Labour Economics, Elsevier, vol. 16(4), pages 397-408, August.
  2. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad, 2008. "New Estimates of the Effects of Minimum Wages in the U.S. Retail Trade Sector," IZA Discussion Papers 3597, Institute for the Study of Labor (IZA).
  3. William Scarth & Lei Tang, 2007. "An Evaluation of the Working Income Tax Benefit," Social and Economic Dimensions of an Aging Population Research Papers 220, McMaster University.
  4. Pia M. Orrenius & Madeline Zavodny, 2008. "The effect of minimum wages on immigrants' employment and earnings," Working Papers 0805, Federal Reserve Bank of Dallas.
  5. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2011. "Do Frictions Matter in the Labor Market? Accessions, Separations and Minimum Wage Effects," IZA Discussion Papers 5811, Institute for the Study of Labor (IZA).
  6. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad, 2008. "The Effect of Minimum Wages on Wages and Employment: County-Level Estimates for the United States," IZA Discussion Papers 3300, Institute for the Study of Labor (IZA).
  7. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2012. "Minimum Wage Shocks, Employment Flows and Labor Market Frictions," Institute for Research on Labor and Employment, Working Paper Series qt76p927ks, Institute of Industrial Relations, UC Berkeley.
  8. Wolfgang Franz & Wolfgang Wiegard & Beatrice Weder di Mauro, 2008. "Hände weg von Mindestlöhnen," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 61(06), pages 08-12, 03.
  9. William Scarth & Lei Tang, 2007. "An Evaluation of the Working Income Tax Benefit," Quantitative Studies in Economics and Population Research Reports 424, McMaster University.

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