The Economic Policy Institute and Institute for Research on Labor and Employment weigh in on how the Earned Income Tax Credit and $15 minimum wage combine to raise wages and reduce poverty.
A just-released report from the Economic Policy Institute (EPI) and University of California, Berkeley’s Institute for Research on Labor and Employment (IRLE) argues that a strong minimum wage and expanded Earned Income Tax Credit (EITC) work best together to raise incomes and lift low-wage workers out of poverty.
In the report, economists Jesse Rothstein and Ben Zipperer argue that both the minimum wage and the EITC improve the lives of low-wage workers, and they are likely more effective when they are designed as complements: “Policy discussions often treat EITC expansions and minimum wage raises as alternatives, of which we should choose just one. This is a misconception. In economic terms, the two policies are complementary and may be more effective in combination than either is on its own.”
In other words, coupling the EITC with a $15 minimum wage ensures that as much money as possible ends up in workers' wallets and helps them with the high cost of living and housing beyond what $15 minimum wage alone can do.
The paper also clarifies some common misconceptions that sprang out of Rothstein’s previous research on the impact of the EITC. Some have used his 2010 findings on the subject to argue that the EITC should not be increased for fear of subsidizing low-wage employers. But in this report, Rothstein and Zipperer argue that those claims don’t capture the full picture today. They note that our understanding of how the EITC affects wages is still “at a very early stage,” partly because we need richer economic models to study impacts of the EITC, and also because the data in the 2010 paper came from a time when the minimum wage was $4.25. Since then, wages have risen and the economy has changed significantly.
This work lays groundwork for advancing the best combination of policies to improve the wellbeing of low-wage workers and adds to the growing body of research that supports modernizing and expanding the EITC.