Who Benefits from the EITC?

Posted on February 18, 2013 by ozidar

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.

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I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar. http://faculty.chicagobooth.edu/owen.zidar/index.html

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This entry was posted in Uncategorized and tagged Incidence, inequality, Jesse Rothstein, labor market, Minimum Wage, Raj Chetty, Tax Incidence, Taxes, Wages. Bookmark the permalink.

1 Response to Who Benefits from the EITC?

Cornbread says:

February 19, 2013 at 5:56 am

I haven’t watched the video yet. Don’t have time this morning, so give my comment short-shrift if it’s addressed there.

One problem with America’s low social mobility is that very few highly educated people have every been substantively poor–and as a result have never gotten an EITC. The thing about a job is that you have to have money and other resources before you can get one. This includes the crummy jobs too. You have to have clothes to interview in, be able to afford a shower, soap, food, transportation. Most people who get the EITC are one disaster away from lacking the resources to work. And by disaster I mean one car breakdown. One severe illness. One accident. If you talk to people who get the EITC you’ll find in most cases it goes into savings or emergencies.

So yes, the EITC increases the number of low-skill workers, because it increases the number who can afford to keep a job. Not because it somehow “entices” somebody to work.

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