Minimum wage and EITC

David Neumark, this time with William Wascher, continues his reign of enlightenment:

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.

Here is the paper, here are non-gated versions.  In short, the standard liberal recipe of boosting the minimum wage and the earned income tax credit is probably good for women, bad for men.  The interesting question is what kind of model could rationalize this result…


Comments for this post are closed