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Helping the Working Poor: Employer- vs. Employee-Based Subsidies

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  • Stacy Dickert-Conlin
  • Douglas Holtz-Eakin
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    Abstract

    In the United States and Europe there has been renewed interest in subsidizing firms that employ disadvantaged workers as a means of addressing poverty and other social problems. In contrast, the prevailing practice is largely to provide social welfare benefits directly to individuals. Which approach is better? We re-examine the relative merits of employee- versus employer-based labor market subsidies and conclude there are good reasons to continue to rely on the direct, employee-based approach. In practice, low-wage workers are seldom either low-skill or low-income workers. Furthermore, workers who might quality for a firm-based subsidy are reluctant to so identify themselves for fear of being stigmatized or labeled as "needy." Thus, employer-based subsidy programs have lower participation rates and correspondingly higher per capita expenditures than employee-based subsidy programs.

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    File URL: http://www.maxwell.syr.edu/uploadedFiles/cpr/publications/pb14.pdf
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    Bibliographic Info

    Paper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Policy Briefs with number 14.

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    Length: 32 pages
    Date of creation: Aug 1999
    Date of revision:
    Handle: RePEc:max:cprpbr:14

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    1. Holtzblatt, Janet & McCubbin, Janet & Gillette, Robert, 1994. "Promoting Work Through the EITC," National Tax Journal, National Tax Association, vol. 47(3), pages 591-607, September.
    2. David Neumark & Mark Schweitzer & William Wascher, 2005. "The Effects of Minimum Wages on the Distribution of Family Incomes: A Nonparametric Analysis," Journal of Human Resources, University of Wisconsin Press, vol. 40(4), pages 867-894.
    3. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
    4. Kevin Hollenbeck & Richard J. Willke, 1991. "The Employment and Earnings Impacts of the Targeted Jobs Tax Credit," Upjohn Working Papers and Journal Articles 91-07, W.E. Upjohn Institute for Employment Research.
    5. Nada Eissa & Jeffrey B. Liebman, 1995. "Labor Supply Response to the Earned Income Tax Credit," NBER Working Papers 5158, National Bureau of Economic Research, Inc.
    6. Nada Eissa & Hilary Williamson Hoynes, 2000. "The Earned Income Tax Credit and the Labor Supply of Married Couples," Public Economics 9912001, EconWPA.
    7. J. K. Scholz, . "The earned income tax credit: Participation, compliance, and antipoverty effectiveness," Institute for Research on Poverty Discussion Papers 1020-93, University of Wisconsin Institute for Research on Poverty.
    8. John H. Bishop & Suk Kang, 1991. "Applying for entitlements: Employers and the targeted jobs tax credit," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 10(1), pages 24-45.
    9. Whitehouse, Edward, 1996. "Designing and Implementing In-Work Benefits," Economic Journal, Royal Economic Society, vol. 106(434), pages 130-41, January.
    10. Jeffrey B. Liebman, 1998. "The Impact of the Earned Income Tax Credit on Incentives and Income Distribution," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 83-120 National Bureau of Economic Research, Inc.
    11. Stacy Dickert & Scott Houser & John Karl Scholz, 1995. "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 1-50 National Bureau of Economic Research, Inc.
    12. Gary Burtless, 1985. "Are targeted wage subsidies harmful? Evidence from a wage voucher experiment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 39(1), pages 105-114, October.
    13. 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.
    14. Scholz, John Karl, 1994. "The Earned Income Credit: Participation, Compliance, and Antipoverty Effectiveness," National Tax Journal, National Tax Association, vol. 47(1), pages 63-87, March.
    15. Dubin, Jeffrey A. & Rivers, Douglas, 1993. "Experimental estimates of the impact of wage subsidies," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 219-242, March.
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