NCPA - National Center for Policy Analysis

The Minimum Wage versus the Earned Income Tax Credit

August 10, 2015

San Francisco, Los Angeles, Seattle and New York State have all taken steps to establish a $15 an hour minimum wage.  However, this will do far less to raise people out of poverty than the Earned Income Tax Credit (EITC) does currently, writes Joshua Latshaw, research associate with the National Center for Policy Analysis. 

Estimates from the Current Population Survey show that about a quarter of workers earn less than $15 an hour, but many who would benefit from a minimum wage increase are not poor:

  • Thirty-four percent of workers who would see their wages increase live in a household making three times the poverty level, of $72,750 for a family of four.
  • Almost 60 percent of the new minimum wage workers live in households with incomes twice the poverty level or higher, or $48,500 for a family of four.

 In contrast, the EITC supports the working poor in a much more targeted way:

  • Two-thirds of those benefiting from the earned income tax credit earn less than 1.5 times the poverty level.
  • This includes a single parent earning less than $24,000 a year or a single person earning $17,000 or less.

Economists David Neumark and William Wascher estimate that a 10 percent increase in the mimimum wage results in a 1 percent to 3 percent decrease in employment among affected workers.  Thus, using the March supplement of the 2014 CPS, it can be estimated that:

  • The average hourly wage increase for the affected group of workers would be 39 percent.
  • Under conservative assumptions, employment would fall among affected workers 5 percent.
  • A 5 percent decrease in employment amounts to 2.4 million jobs lost.

Source:  Joshua Latshaw, "Lifting Workers Out of Poverty:  The Minimum Wage versus the Earned Income Tax Credit," August 10, 2015.

 

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