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Public policies for the working poor: The earned income tax credit versus minimum wage legislation

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  • R. V. Burkhauser
  • K. A. Couch
  • A. J. Glenn

Abstract

This paper documents the declining relationship between low hourly wages and low household income over the last half-century and how this has reduced the share of minimum wage workers who live in poor households. It then compares recent and prospective increases in the earned income tax credit (EITC) and the minimum wage as methods of increasing the labor earnings of poor workers. Data from the Current Population Survey (CPS) are used to simulate the effects of both programs. Increases in the EITC between 1989 and 1992 delivered a much larger proportion of a given dollar of benefits to the poor than did increases in the minimum wage from $3.35 to $4.25. Scheduled increases in the EITC through 1996 will also do far more for the working poor than raising the minimum wage.

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Paper provided by University of Wisconsin Institute for Research on Poverty in its series Institute for Research on Poverty Discussion Papers with number 1074-95.

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Handle: RePEc:wop:wispod:1074-95

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  1. repec:fth:prinin:298 is not listed on IDEAS
  2. Katz, L.F. & Krueger, A.B., 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Harvard Institute of Economic Research Working Papers 1584, Harvard - Institute of Economic Research.
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  4. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(4), pages S87-104, August.
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  6. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 2(3), pages 133-45, Summer.
  7. Saul D. Hoffman & Laurence S. Seidman, 1990. "The Earned Income Tax Credit," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, W.E. Upjohn Institute for Employment Research, number eitc.
  8. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc.
  9. 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.
  10. Browning, Edgar K., 1995. "Effects of the Earned Income Tax Credit on Income and Welfare," National Tax Journal, National Tax Association, vol. 48(1), pages 23-43, March.
  11. David Card & Alan B. Krueger, 1993. "Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania," NBER Working Papers 4509, National Bureau of Economic Research, Inc.
  12. Richard V. Burkhauser & T. Aldrich Finegan, 1989. "The minimum wage and the poor: The end of a relationship," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 8(1), pages 53-71.
  13. David Card & Lawrence Katz & Alan Krueger, 1993. "Comment on David Neumark and William Wascher, 'Employment Effects of Minimum and Subminimum Wages: Panel Data on State Minimum Wage Laws'," Working Papers, Princeton University, Department of Economics, Industrial Relations Section. 695, Princeton University, Department of Economics, Industrial Relations Section..
  14. David Neumark & William Wascher, 1992. "Employment effects of minimum and subminimum wages: Panel data on state minimum wage laws," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 55-81, October.
  15. Ronald G. Ehrenberg, 1992. "New minimum wage research: Symposium introduction," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 46(1), pages 3-5, October.
  16. Edward M. Gramlich, 1976. "Impact of Minimum Wages on Other Wages, Employment, and Family Incomes," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 7(2), pages 409-462.
  17. Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
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Cited by:
  1. 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, vol. 54(n. 2), pages 281-318, June.
  2. Marianne E. Page & Joanne Spetz & Jane Millar, 2000. "Does the Minimum Wage Affect Welfare Caseloads?," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 135, Northwestern University/University of Chicago Joint Center for Poverty Research.
  3. Jeffrey Mills & Kakoli Roy & Nicolas Williams, 1999. "Recent minimum wage increases and the minimum wage labor force," Journal of Labor Research, Springer, Springer, vol. 20(4), pages 479-492, December.
  4. David Neumark & William Wascher, 2000. "Using the EITC to Increase Family Earnings: New Evidence and a Comparison with the Minimum Wage," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 134, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. Viktor Steiner, 2007. "Beschäftigungsförderung und Einkommenssicherung im Niedriglohnbereich: Wege und Irrwege," Discussion Papers of DIW Berlin 747, DIW Berlin, German Institute for Economic Research.
  6. Bruce D. Meyer, 2010. "The Effects of the Earned Income Tax Credit and Recent Reforms," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 153-180 National Bureau of Economic Research, Inc.
  7. Barry Bluestone & Teresa Ghilarducci, . "Making Work Pay, Wage Insurance for the Working Poor," Economics Public Policy Brief Archive ppb_28, Levy Economics Institute.
  8. Jared Bernstein, 2004. "The Living Wage Movement. What Is It, Why Is It, and What’s Known about Its Impact?," NBER Chapters, in: Emerging Labor Market Institutions for the Twenty-First Century, pages 99-140 National Bureau of Economic Research, Inc.
  9. David Neumark & William Wascher, 2011. "Does a Higher Minimum Wage Enhance the Effectiveness of the Earned Income Tax Credit?," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 64(4), pages 712-746, July.
  10. Natalya Y. Shelkova, 2008. "Low-Wage Labor Markets and the Power of Suggestion," Working papers, University of Connecticut, Department of Economics 2008-33, University of Connecticut, Department of Economics, revised Dec 2008.
  11. Richard V. Burkhauser & Kosali I. Simon, 2007. "Who Gets What from Employer Pay or Play Mandates?," NBER Working Papers 13578, National Bureau of Economic Research, Inc.
  12. Michele Campolieti & Morley Gunderson & Byron Lee, 2012. "The (Non) Impact of Minimum Wages on Poverty: Regression and Simulation Evidence for Canada," Journal of Labor Research, Springer, Springer, vol. 33(3), pages 287-302, September.
  13. Figari, Francesco, 2009. "Can in-work benefits improve social inclusion in the southern European countries?," EUROMOD Working Papers EM4/09, EUROMOD at the Institute for Social and Economic Research.
  14. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc.

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