A Good Policy Gone Bad: The Strange Case of the Non-Refundable State EITC

Twenty states and several cities have adopted their own EITC programs, typically piggy-backing on the federal EITC by offering benefits equal to some designated proportion of the federal benefits. In all but four states, the state EITC is fully refundable, just like the Federal EITC. Using the example of Delaware, which adopted a non-refundable EITC in 2006, I show the peculiar distribution effects of such a policy. Roughly the lower income half of the EITC recipient population is ineligible for the Delaware non-refundable EITC. Married couples and both single-parent and two-parent families with less than two children also often lose eligibility and/or a substantial portion of benefits. The average benefit received by Federal EITC recipients falls by almost two-thirds. It is likely that these impacts of EITC non-refundability results would hold in other states considering such a policy.EITC, Earned Income Tax Credit

"Revisiting Marshall’s Third Law: Why Does Labor’s Share Interact with the Elasticity of Substitution to Decrease the Elasticity of Labor Demand?"

The third Marshall-Hicks-Allen rule of elasticity of derived demand purports to show that labor demand is less elastic when labor is a smaller share of total costs. As Hicks, Allen, and then Bronfenbrenner showed, this rule is not quite correct, and actually is complicated by an unexpected negative relationship involving labor’s share of total costs and the elasticity of substitution. The standard intuitive explanation for the exception to the rule, due to Stigler, describes a situation rather different than the one described in the rule. In this paper, I present an example that illustrates the peculiar negative impact of labor’s share, operating via the elasticity of substitution. I then explain why the unexpected relationship between labor’s share of total cost, the elasticity of substitution, and the elasticity of labor demand holds.Labor Demand, Hicks-Marshall Rules

"Updating the Teen Miscarriage Experiment: Are the Effects of a Teen Birth Becoming More Negative?"

A reanalysis of the Hotz, McElroy, and Sanders research on the impact of a teen birth on socio-economic outcomes shows that their data set, which includes information on outcomes at older ages only for teen mothers with the earliest calendar year births, is partly responsible for their unexpected findings. Even more interestingly, I find that the impacts of a teen birth differ substantially between the teen mothers who had births in the early to mid 1970s and those who had births in the late 1970s and early 1980s. The mostly positive effects found by Hotz, McElroy, and Sanders hold only for the first group, while impacts are far more negative for the later ones. This tentatively suggests that teen birth effects, even those found using the teen miscarriage methodology, may be more negative than recently reported and also that the estimates from Hotz, McElroy, and Sanders may not be fully relevant for assessing the impact of a teen birth for today’s young women. Because these new estimates are based on smaller samples with fewer miscarriages, the findings should be interpreted cautiously.Teen, Teen Fertility

"Employment Effects of the 2009 Minimum Wage Increase: Evidence from State Comparisons of At-Risk Workers"

In July, 2009, the U.S. Federal minimum wage was increased from $6.55 to$7.25. Individuals in some states were unaffected by this increase, since the state minimum wage already exceeded $7.25 and the state minimum was not increased further. We use this variation, as well as variation in the actual amount of the increase, to make comparisons of the employment of “at-risk” workers across states with their peers and within states with workers arguably unaffected by the increase. Our data come from the 2009 CPS, four and five months before and after the increase. We find some evidence that the employment of some at-risk demographic groups declined as a result of the minimum wage increase, but the impacts are not statistically significant. We also find that the employment changes were not responsive to the actual amount of the increase.minimum wage

NJ and PA Once Again: What Happened to Employment When the PA-NJ Minimum Wage Differential Disappeared?

Card and Krueger's analysis of the impact of the 1992 increase in the NJ state minimum wage is very well known and still controversial. Interestingly, the original NJ-PA natural experiment was followed by another one involving the same two states, an experiment that has not yet been noted or examined. In 1996 and 1997, the federal minimum wage was increased in two steps, from $4.25 to$5.15, thereby increasing the minimum wage by $0.90 in PA but by just$0.10 in NJ. We use CPS data from 1995 and 1998 to examine the impacts on employment, using difference-in-difference and difference-in-difference-in-difference estimators that exploit within- state and between-state comparisons. We find consistent evidence that employment of “at-risk” groups was negatively impacted in PA relative to other groups in PA and to comparable groups in NJ.Minimum Wage, Card-Krueger

"Employment Effects of the 2009 Minimum Wage Increase: Evidence from State Comparisons of At-Risk Workers (Revised Version)"

In July, 2009, the U.S. Federal minimum wage was increased from $6.55 to$7.25. Individuals in some states were unaffected by this increase, since the state minimum wage already exceeded $7.25. We use this variation to make comparisons of the employment of “at-risk” workers with their peers across states and with workers within states who were arguably unaffected by the increase. Our data come from the 2009 CPS, four and five months before and after the increase. We find little evidence of negative employment effects for teens or less- educated adults, but some stronger evidence of a negative effect for young adults with a high school degree or less. Control for demographic characteristics reduces the size and significance of the estimated effects.Minimum Wage

"Croatian Wage Inequality and Wage Differentials, 1970-2008: Measurement and Determinants"

We use newly-available data on income by educational and vocational attainment and grouped income-interval data to examine wage inequality and wage differentials in Croatia between 1970 and 2008. This is a time period during which Croatia experienced enormous institutional and structural change, including the fall of socialism, hyperinflation, the Homeland war and the creation of sovereign Croatia. We construct both Gini and Theil measures of inequality, using grouped data. We find a general compression of earnings differences by educational and vocational attainment, but with a slight increase in the capitalist period post-1990. The income interval data shows a clearer pattern of a secular increase in inequality that is sharper in the capitalist period. We also examine within-industry inequality to see whether industries that experienced stronger structural changes also experienced a greater increase in inequality. Our evidence on this is mixed.Croatia, Transition Economy Labor Markets, Inequality, Gini coefficient, Theil Index

"Wage Differentials and Wage Inequality in Croatia, 1970-2008: Assessing the Labor Market Impact of Economic Transformation"

In this paper, we examine wage inequality and wage differentials in Croatia from 1970 to 2008. We focus especially on changing income inequality related to educational and vocational attainment, changing income inequality within those groups, and how these two components of inequality were affected by the economic transformation from Socialism to capitalism. We find that income inequality between groups was relatively stable, while overall inequality trended upward in the post-transformation period. This finding is consistent with a growing importance of individual rather than group productivity in labor market compensation, a change broadly consistent with the economic transformation of the Croatian labor market.Croatia, Economics of Transition, Inequality, Gini coefficient

The Earned Income Tax Credit: Antipoverty Effectiveness and Labor Market Effects

The authors begin with a detailed assessment then perform empirical analyses to predict the outcomes of changes to the structure of the program.https://research.upjohn.org/up_press/1099/thumbnail.jp