Given the discussion on minimum wages and other low-income programs, I thought I’d highlight a study by Jesse Rothstein that roughly argues that the EITC encourages more people to work, which bids wages down for low income workers and enables low-income employers to pay lower wages. Thus, recipients of the EITC don’t get a full dollar of benefits (Rothstein estimates that they get 73 cents on the dollar) due to lower wages and other low income workers who aren’t eligible for the benefit are even worse off since they don’t get the extra EITC funds but do get the lower wages. It’s worth watching Raj Chetty discuss this paper (starts at 56:26) if you’d like more detail as well as some critical reactions to the paper and approach.
I'm an Economics Ph.D. student at UC Berkeley focusing on public finance topics at the intersection of labor economics and macroeconomics. My current research focus is on the interaction of corporate taxation, firm location decisions, and the location and scale of economic activity. You can follow me on twitter @omzidar.
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