Do What Works to Help Welfare Recipients Work

The earned-income tax credit beats the minimum wage.

 By David Neumark
 

President Trump issued an executive order Tuesday encouraging federal agencies to adopt more-stringent work requirements for various welfare programs. What can Congress do to encourage work? Two possibilities are increasing the minimum wage and expanding the earned-income tax credit. My recent research shows that these two policies can have very different, and perhaps unintended, effects on the ability to become economically self-sufficient over time.

The minimum wage does, of course, provide an immediate boost to earnings of employed workers. But evidence indicates that minimum wages reduce employment among young workers, costing them work experience that generates earnings growth in the long run. One of my recent studies shows that the shift to higher minimum wages since 2000 has contributed significantly to declines in employment among teens in school, which can reduce adult earnings later.

Do What Works to Help Welfare Recipients Work
PHOTO: ISTOCK/GETTY IMAGES

Because it promotes work, the EITC should do just the opposite among those eligible for its most generous benefits—low-skilled single mothers, a critical population for reducing poverty. To test this, I follow women in their 20s and 30s across many decades, tracking their childbearing and marriage, as well as the generosity of the federal and state EITCs for which they qualified each year. The evidenceshows that exposure to a more generous EITC leads to markedly higher earnings in the long run among less-educated single mothers.

 

Taken together, what are the effects of pro-work policies like the minimum wage and the EITC—not on jobs and earnings now, but on poverty and reliance on public assistance in the long run?

In forthcoming research, my colleagues and I find that minimum wages are counterproductive, leading to higher poverty and an increased reliance on public assistance in disadvantaged neighborhoods. The EITC, in contrast, reduces poverty and dependence on public assistance, with one caveat: It may be less effective in severely disadvantaged neighborhoods where there is insufficient labor demand to absorb more people looking for work.

In the period before the 1996 welfare reform, more-generous welfare benefits increased poverty and the share on public assistance. These adverse effects evaporated after welfare reform, when work incentives and support were strengthened.

Washington should pursue antipoverty policies that help turn government assistance in the short term into economic self-sufficiency in the long term. That means doing what works to promote work.

Mr. Neumark is a professor of economics and director of the Economic Self-Sufficiency Policy Research Institute at the University of California, Irvine.

Appeared in the April 12, 2018, print edition as ‘Do What Works to Promote Work.’

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