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

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Author Info
R. V. Burkhauser
K. A. Couch
A. J. Glenn

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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. Ronald G. Ehrenberg, 1992. "New minimum wage research: Symposium introduction," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 46(1), pages 3-5, October.
  2. 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. [Downloadable!] (restricted)
  3. repec:fth:prinin:300 is not listed on IDEAS
  4. 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, ILR School, Cornell University, vol. 46(1), pages 55-81, October.
  5. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. 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(1976-2), pages 409-462. [Downloadable!]
  7. Lawrence Katz & Alan Krueger, 1992. "The Effect of the Minimum Wage on the Fast Food Industry," Working Papers 678, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  8. David Card, 1992. "Using Regional Variation in Wages to Measure the Effects of the Federal Minimum Wage," Working Papers 680, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
    Other versions:
  9. Brown, Charles, 1988. "Minimum Wage Laws: Are They Overrated?," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 133-45, Summer. [Downloadable!] (restricted)
  10. Mincer, Jacob, 1976. "Unemployment Effects of Minimum Wages," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages S87-104, August. [Downloadable!] (restricted)
  11. repec:fth:prinin:298 is not listed on IDEAS
  12. Card, David & Krueger, Alan B, 1994. "Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania," American Economic Review, American Economic Association, vol. 84(4), pages 772-93, September. [Downloadable!] (restricted)
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  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 695, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
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  1. Natalya Y. Shelkova, 2008. "Low-Wage Labor Markets and the Power of Suggestion," Working papers 2008-33, University of Connecticut, Department of Economics, revised Dec 2008. [Downloadable!]
    Other versions:
  2. Thomas DeLeire, 2000. "The Wage and Employment Effects of the Americans with Disabilities Act," Working Papers 0008, Harris School of Public Policy Studies, University of Chicago. [Downloadable!]
  3. David Card & Alan Krueger, 1994. "A Living Wage? The Effects of the Minimum Wage on the Distribution of Wages, the Distribution of Family Earnings, and Poverty," Working Papers 712, Princeton University, Department of Economics, Industrial Relations Section.. [Downloadable!]
  4. David Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," NBER Working Papers 14320, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. David Neumark & William Wascher, 2000. "Using the EITC to Help Poor Families: New Evidence and a Comparision with the Minimum Wage," NBER Working Papers 7599, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. David Neumark & William Wascher, 2000. "Using the EITC to Increase Family Earnings: New Evidence and a Comparison with the Minimum Wage," JCPR Working Papers 134, Northwestern University/University of Chicago Joint Center for Poverty Research.
  8. Marianne E. Page & Joanne Spetz & Jane Millar, 2000. "Does the Minimum Wage Affect Welfare Caseloads?," JCPR Working Papers 135, Northwestern University/University of Chicago Joint Center for Poverty Research.
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