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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12915.

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Date of creation: Feb 2007
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Publication status: published as Neumark, David and William Wascher. "Does a Higher Minimum Wage Enhance the Effectiveness of The Earned Income Tax Credit? " Industrial and Labor Relations Review 64, 4 (2011).
Handle: RePEc:nbr:nberwo:12915
Note: LS PE
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  15. 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.
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