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Does a Higher Minimum Wage Enhance the Effectiveness of The Earned Income Tax Credit?


  • David Neumark
  • William Wascher


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.

Suggested Citation

  • David Neumark & William Wascher, 2007. "Does a Higher Minimum Wage Enhance the Effectiveness of The Earned Income Tax Credit?," NBER Working Papers 12915, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12915
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    References listed on IDEAS

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    6. Jesse Rothstein, 2008. "The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC," Working Papers 1049, Princeton University, Department of Economics, Center for Economic Policy Studies..
    7. Cancian, Maria & Levinson, Arik, 2006. "Labor Supply Effects of the Earned Income Tax Credit: Evidence From Wisconsin's Supplemental Benefit for Families With Three Children," National Tax Journal, National Tax Association, vol. 59(4), pages 781-800, December.
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    9. Cameron, Stephen V & Heckman, James J, 1993. "The Nonequivalence of High School Equivalents," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages 1-47, January.
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    Cited by:

    1. Raissian, Kerri M. & Bullinger, Lindsey Rose, 2017. "Money matters: Does the minimum wage affect child maltreatment rates?," Children and Youth Services Review, Elsevier, vol. 72(C), pages 60-70.
    2. Pia M. Orrenius & Madeline Zavodny, 2008. "The Effect of Minimum Wages on Immigrants' Employment and Earnings," ILR Review, Cornell University, ILR School, vol. 61(4), pages 544-563, July.
    3. William Scarth & Lei Tang, 2008. "An Evaluation of the Working Income Tax Benefit," Canadian Public Policy, University of Toronto Press, vol. 34(1), pages 25-36, March.
    4. Orrenius, Pia M. & Zavodny, Madeline, 2007. "The minimum wage and Latino workers," Working Papers 0708, Federal Reserve Bank of Dallas.
    5. Jeannette Wicks-Lim & Jeffrey Thompson, 2010. "Combining Minimum Wage and Earned Income Tax Credit Policies to Guarantee a Decent Living Standard to All U.S. Workers," Published Studies peri_mw_eitc_oct2010, Political Economy Research Institute, University of Massachusetts at Amherst.
    6. 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).
    7. 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.
    8. William Scarth & Lei Tang, 2007. "An Evaluation of the Working Income Tax Benefit," Quantitative Studies in Economics and Population Research Reports 424, McMaster University.
    9. Laura Giuliano, 2013. "Minimum Wage Effects on Employment, Substitution, and the Teenage Labor Supply: Evidence from Personnel Data," Journal of Labor Economics, University of Chicago Press, vol. 31(1), pages 155-194.
    10. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad, 2011. "Minimum Wage Increases Under Straightened Circumstances," IZA Discussion Papers 6036, Institute for the Study of Labor (IZA).
    11. 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).
    12. John T. Addison & McKinley L. Blackburn & Chad D. Cotti, 2012. "The Effect of Recent Increases in the U.S. Minimum Wage: Results from Three Data Sources," Working Paper series 58_12, Rimini Centre for Economic Analysis.
    13. repec:mpr:mprres:6351 is not listed on IDEAS
    14. repec:eee:ecosys:v:41:y:2017:i:4:p:492-512 is not listed on IDEAS
    15. Dube, Arindrajit & Lester, T. William & Reich, Michael, 2013. "Minimum Wage Shocks, Employment Flows and Labor Market Frictions," Institute for Research on Labor and Employment, Working Paper Series qt27z0006g, Institute of Industrial Relations, UC Berkeley.
    16. Addison, John T. & Blackburn, McKinley L. & Cotti, Chad D., 2011. "Minimum Wage Increases in a Soft U.S. Economy," Economics Series 273, Institute for Advanced Studies.

    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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