Helping Low-wage Americans–The Earned Income Tax Credit: An Effective Solution to an Age-old Problem

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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. 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, impending elections—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.