The Earned Income Tax Credit Targets Poverty More Directly Than Wage Floors
David Neumark argues that minimum-wage increases are a poor anti-poverty tool because they can reduce jobs and hours for lower-skilled workers while directing gains to many people outside poor households. He contends that the Earned Income Tax Credit better targets low-income working families by supplementing their earnings without raising employers’ cost of hiring.
A higher hourly wage is not the same as higher family income
Raising the minimum wage is commonly offered as a way to support low-wage workers and low-income families. The intended chain is straightforward: require a higher hourly rate, increase earnings, and reduce poverty.
The analysis based on David Neumark’s work challenges that chain at the point where employers absorb the mandate. A higher minimum wage raises the cost of employing labor. Businesses may respond by favoring more experienced workers over less-skilled ones, reducing available jobs or hours, or substituting machines for workers.
Higher minimum wages raise labor costs, leading businesses to substitute away from low-skilled labor toward more experienced workers or machines.
The concern is therefore not limited to the hourly rate attached to a job. It is whether lower-skilled workers can obtain work and sufficient hours in the first place. The source’s account is that higher labor costs leave fewer jobs and fewer hours available to the workers who need them most.
The federal minimum wage has remained $7.25 an hour since 2007. States have increasingly set their own higher floors: the source identifies 31 states with minimum wages above the federal level, with some rates nearing $20 an hour. Those state examples matter because they show that the argument is directed not only at the long-static federal rate, but at substantially higher wage floors already adopted at the state level.
| State | Displayed minimum wage |
|---|---|
| Washington | $17.13 |
| California | $16.90 |
| New York | $17.00 |
The argument is not that higher wages are undesirable because they raise pay. It is that a policy intended to improve workers’ economic wellbeing cannot be judged solely by the wage received in jobs that remain available. It must also account for changes in the availability of low-skilled work.
A wage floor does not target the households in poverty
Whether a minimum wage reduces poverty depends on which households receive its gains, not simply on which workers are covered. The analysis distinguishes minimum-wage workers from members of poor families. Many minimum-wage workers, it says, are teenagers from higher-income families. Meanwhile, poor families may include people working only a few hours or not working at all.
That distinction is central to the targeting problem. A wage floor applies to the hourly pay of a particular job, while the stated objective is support for low-income families. Someone outside employment receives no direct income from a higher minimum wage; someone able to find only limited hours receives only limited benefit. And workers whose pay rises need not belong to the households with the lowest incomes.
The source makes a broader empirical claim: higher minimum wages have not increased earnings or reduced poverty. It attributes that result to fewer jobs and fewer hours for those who need them most, with no income gains on average for low-income families.
In this view, a wage-floor increase can raise the hourly wage for covered work without serving as an effective anti-poverty policy. The problem is not simply that some workers may lose work or hours. It is that the people whose household income is meant to rise are not necessarily the people positioned to receive the higher wage.
The EITC directs support through household income
The Earned Income Tax Credit is presented as an alternative because it uses a different route to support family income. Rather than requiring employers to pay a higher wage, the EITC provides additional income from the federal government to working families with low incomes.
That difference is central to the case for the credit. The EITC supplements earnings without increasing an employer’s cost of hiring a worker. It is therefore presented as a way to support low-income working households without pricing workers out of the labor market.
The contrast is not between helping workers and doing nothing. It is between two ways of financing support. A minimum wage requires employers to bear a mandated increase in labor costs. The EITC adds income through a federal tax credit for working families with low incomes. One operates through the wage paid for a job; the other through the income received by a working household.
For Neumark’s argument, the preferred outcome is not merely a higher nominal wage. It is greater income for low-income working families while preserving opportunities to work. States seeking to address earnings inequality and poverty should, on this view, abandon a popular but ineffective wage-floor policy in favor of a more targeted credit.