Living Wage and Earned Income Tax Credit

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he Employment Policies Institute (EPI) is a nonprofit research organization dedicated to

studying public policy issues surrounding employment growth. In particular, EPI research focuses on issues that affect entry-level employment. Among other issues, EPI research has quantified the impact of new labor costs on job creation, explored the connection between entry-level employment and welfare reform, and analyzed the demographic distribution of mandated benefits. EPI sponsors nonpartisan research that is conducted by independent economists at major universities around the country.

Dr. Mark Turner, former Research Scientist at Johns Hopkins University, is currently President of Optimal Solutions Group LLC and Adjunct Professor at the Georgetown Public Policy Institute, Georgetown University. Dr. Turner was also formerly a research associate at the Urban Institute in Washington D.C. He has researched issues such as the low-skill workforce, welfare, and the minimum wage. He earned his Ph.D. in Economics from the University of Maryland at College Park in 1996 Dr. Burt S. Barnow is Associate Director for Research and Principal Research Scientist at Johns Hopkins University's Institute for Policy Studies. He is also Professor of Economics at Johns Hopkins University. His research interests include labor economics, public finance, and welfare-to-work programs. Dr. Barnow received his Ph.D. in economics from the University of Wisconsin in Madison.

Living Wage and Earned Income Tax Credit: A Comparative Analysis Mark D. Turner and Burt S. Barnow

Executive Summary

targeted, focusing the same amount of money on families with children (the authors focus on Living wage ordinances have spread rapidly since the two child family), with eligibility matching 1994 when Baltimore opened the modern era of the federal EITC guidelines for family size.1 high-wage mandates. As of June 2002, 82 cities However, benefits phase-in and phase-out rates had adopted a living wage law in some form. do not match the federal program, but are However, the efficiency of these laws is still scaled to local benefit levels. under scrutiny. If the main goal is to provide additional income to families, are living wage Do Poor Families Qualify? laws the best means to reach that goal? This new research from Dr. Mark Turner (Georgetown Less than one percent of the poorest working University) and Dr. Burt Barnow (Johns families in major cities without living wages are Hopkins University) shows that living wage laws eligible for benefits under a narrowly targeted are vastly inefficient when compared to localized living wage.2 Broad-based living wages would benefit just 39 percent of the poorest working Earned Income Tax Credit (EITC) programs. families—defined as those with incomes below 60% of the poverty level. Comparatively, 92 Family Income or percent of the poorest working families meet Wage Thresholds? the EITC eligibility requirements, suggesting The central question for lawmakers to consid- that the EITC is a far better targeted program. Using the fact that eligibility for the federer is whether their anti-poverty policies target low-income families or simply cover workers al EITC is phased out at annual incomes of who happen to hold low-wage jobs. This about $32,000, this can be used as a good research provides strong evidence that a local proxy to see how well living wage programs EITC targets low-income families, while the are targeted to low-income working families. living wage approach merely affects low-wage The authors suggest that localities could adopt their own EITC programs that mimic workers regardless of their family income. The authors compare two types of living or piggyback the federal program, with diswages. One is a broad-based living wage that tribution based on federal benefits and eligisamples a wide variety of industries and bility determined by the tax code. A local occupations that might be covered by laws EITC that...
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