Helping Low-wage Americans: The Earned Income Tax Credit

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The unemployment rates for demographic
groups such as teens and minorities are consistently
in double digits. Millions of potential
entry-level employees aren’t even counted in
these figures because they have given up hope
and stopped looking for work. Yet newspapers
all over the country advertise jobs paying $10 an
hour or more. Many practically beg for applicants.
One test of our employment and antipoverty
policies should be whether they are tailored
to address this disconnect.

The near-universal conclusion of decades of economic
research is that minimum wage increases
diminish total employment and destroy opportunities
for entry-level employees.3 Moreover, most
of the benefits associated with minimum wage
hikes accrue to non-poor families. The Earned
Income Tax Credit, in contrast, increases
poor Americans’ income without destroying
job opportunities.

Despite these well-documented realities, a low
national unemployment rate—coupled with the
superficial appeal of minimum wage increases—will
once again lure lawmakers into promoting one of
our least effective anti-poverty programs. But there
is a better way.