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Making Work Pay: Combining the Benefits of the Earned Income Tax Credit and Minimum Wage
Abstract:
The minimum wage and Earned Income Tax Credit (EITC) are two major policies in the United States aimed at improving living standards for low-income workers and their families. These two policies are frequently presented as substitutes, or even in competition with one another, because of the differences in their approaches. This study explores an alternative view: that the minimum wage and EITC work most effectively in tandem, generating greater benefits for low-income workers than is possible when each measure operates alone. The authors examine evidence from between 1997 and 2007 on a state-by-state basis, focusing on conditions for single mothers with a high school degree or less. They find that: both the minimum wage and EITC are associated with higher employment levels; and the minimum wage and EITC strengthen each otherís positive effects However, both policies must be increased well beyond current levels to reach the basic budget income level of $41,400 for a 3-person family.
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