Edward Conard

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Mankiw explains why it’s illogical to raise the minimum wage rather than the earned income tax credit

Advocates for raising the minimum wage complain that the wage hasn’t kept pace with inflation.  They intentionally overlook a logical shift in policy to the earn income tax credit (EITC), which supplements the wages of low income workers with cash. Greg Mankiw, shows that the minimum wage plus the EITC has kept up with inflation. He explains why raising the minimum wage, which taxes the people who produce minimum wage employment—the customers and employers of minimum wage workers—is a suboptimal way to raise minimum wages versus increasing the EITC. And he points out that nearly 80% of an increase in the minimum wage (unlike an increase in the EITC) is captured by workers who are not in poverty. Raising the minimum wage also hurts lower skilled workers by increasing the number of higher skilled workers competing for minimum wage work.

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