Working Paper: NBER ID: w12915
Authors: David Neumark; William Wascher
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; Labor Market Outcomes
JEL Codes: H24; I38; J2; J38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher minimum wage (J38) | Enhanced effectiveness of EITC for eligible families (H31) |
| Higher minimum wage (J38) | Increased labor supply response among women eligible for EITC (H31) |
| EITC (H26) | Positive effect on employment and earnings for single mothers (J12) |
| Interaction between EITC and minimum wage (J38) | Positive influence on employment and earnings for single mothers (J12) |
| Higher minimum wage and EITC (J38) | Reduced employment and earnings for low-skilled individuals without children (J79) |
| Higher minimum wage (J38) | Increased competition for jobs from workers incentivized by EITC (J68) |