Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era

38 Pages Posted: 8 Mar 2007

See all articles by David Neumark

David Neumark

University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007

Abstract

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.

Keywords: minimum wage, Earned Income Tax Credit, welfare reform, employment

JEL Classification: H24, I38, J2

Suggested Citation

Neumark, David and Wascher, William, Minimum Wages, the Earned Income Tax Credit, and Employment: Evidence from the Post-Welfare Reform Era (February 2007). IZA Discussion Paper No. 2610. Available at SSRN: https://ssrn.com/abstract=969377

David Neumark (Contact Author)

University of California, Irvine - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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William Wascher

Board of Governors of the Federal Reserve System - Division of Research and Statistics ( email )

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Washington, DC 20551
United States
202-452-2812 (Phone)
202-452-3819 (Fax)

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