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

David Neumark and William Wascher

No 2610, IZA Discussion Papers from Institute of Labor Economics (IZA)

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 (search for similar items in EconPapers)
JEL-codes: H24 I38 J2 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2007-02
New Economics Papers: this item is included in nep-lab, nep-ltv and nep-pbe
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Citations: View citations in EconPapers (40)

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