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

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  • David Neumark
  • William Wascher

Abstract

The authors estimate the effects of the interactions between the Earned Income Tax Credit (EITC) and minimum wages on labor market outcomes. They use information on policy variation from the Department of Labor's Monthly Labor Review , reports published by the Center on Budget and Policy Priorities, and data on individuals and families from the Current Population Survey to assess the economic impact of minimum wages and the EITC on families. Their results indicate that for single women with children, the EITC boosts employment and earnings, and coupling the EITC with a higher minimum wage enhances this positive effect. Conversely, for less-skilled minority men and for women without children, employment and earnings are more adversely affected by the EITC when the minimum wage is higher. Turning from individuals to families, for very poor families with children a higher minimum wage increases the positive impact of the EITC on incomes, so that a higher minimum wage appears to enhance the effects of the EITC. Whether the policy combination of a high EITC and a high minimum wage is viewed as favorable or unfavorable depends in part on whom policymakers are trying to help.

Suggested Citation

  • David Neumark & William Wascher, 2011. "Does a Higher Minimum Wage Enhance the Effectiveness of the Earned Income Tax Credit?," ILR Review, Cornell University, ILR School, vol. 64(4), pages 712-746, July.
    • Handle: RePEc:sae:ilrrev:v:64:y:2011:i:4:p:712-746
    DOI: 10.1177/001979391106400405
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    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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