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EITC Minimum Wage

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Introduction In 2014 14.8 percent of the United States population, 46.7 million people, were living at or below the federal poverty level (Census, 2014). As the income gap continues to widen, policy makers debate which policies best serve the American people by effectively raising the incomes of the poor. Many politicians argue that raising the minimum wage best increases the incomes of the working poor. However, others believe that increasing the earned income tax credit (EITC) best provides financial relief to low income families, while still others believe neither policy is necessary. This paper examines the costs and benefits of a Kentucky state-level minimum wage increase, a state-level EITC, and a combination of both. Discussion following …show more content…
The minimum wage accomplishes this by raising wages for all workers receiving below a given level, while the EITC increases incomes with an annual tax credit based on family circumstances. Thus, each policy carries significant costs and benefits.
The EITC is politically viable because it requires recipients to be employed and encourages them to remain in the labor force, while still raising incomes of the poor (Manmen, 2010). Additionally, a tax credit for households earning under a given income ensures that benefits go only to households in need. However, research on the EITC revels that many families eligible for the credit do not know about the program or are unable to complete the convoluted process required to receive their return (Manmen, 2010). An eligible individual’s failure to participate in the credit not only hurts the individual, but also his or her community as the individual has less disposable income to spend …show more content…
However, anyone is eligible for the higher wage, thus benefits are not necessarily going to poor households (Neumark, 2011). While economists used to base labor markets on a traditional market model, recent research concludes that a monopsony model better indicates the effects of an increased minimum wage. That is, an increase in minimum wage has no effect or a slightly positive effect on employment (Wolfson, 2004). Unfortunately, because the monopsony model is a recent improvement, many people continue to argue that the minimum wage decreases

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