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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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1935-1682
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Volume 9, Issue 1 (Nov 2009)

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The Optimal Policy Combination of the Minimum Wage and the Earned Income Tax Credit

Miki Malul
  • 1Ben Gurion University,
/ Israel Luski
  • 2Ben Gurion University,
Published Online: 2009-11-20 | DOI: https://doi.org/10.2202/1935-1682.1953

Abstract

This paper evaluates the consequences of minimum wage (MW) and earned income tax credit (EITC) in a model with heterogeneous costs of investment in human capital. Our model studies the effects of a MW and an EITC on employment, productivity, and total output for two types of groups: those with a low cost of acquiring human capital and a long horizon of earnings (Type Ys); and those with a high cost of acquiring human capital and a short horizon of earnings (Type Os). We assume that Type Ys consider investing in human capital while Type Os have a certain predetermined level of human capital and do not consider changing it. Our model suggests that a government might consider imposing a MW exclusively for Type Y individuals and an EITC exclusively for Type O individuals. Some of the best effects of each policy would therefore be obtained and some of the worst consequences would be avoided.

Keywords: minimum wage (MW); earned income tax credit (EITC); human capital

About the article

Published Online: 2009-11-20


Citation Information: The B.E. Journal of Economic Analysis & Policy, ISSN (Online) 1935-1682, DOI: https://doi.org/10.2202/1935-1682.1953. Export Citation

Citing Articles

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[1]
Hila Axelrad, Israel Luski, and Malul Miki
Journal of Behavioral and Experimental Economics, 2015
[2]
Liran Korn, Miki Malul, and Israel Luski
Journal of Employment Counseling, 2015, Volume 52, Number 3, Page 110
[3]
Miki Malul
Applied Economics Letters, 2015, Page 1
[4]
Hila Axelrad, Israel Luski, and Malul Miki
International Journal of Social Economics, 2013, Volume 40, Number 12, Page 1058
[5]
Dan Kaufmann and Miki Malul
European Planning Studies, 2015, Volume 23, Number 7, Page 1345
[6]
Hideaki Goto
Bulletin of Economic Research, 2012, Volume 64, Number 2, Page 192
[7]
Malul Miki and Fany Yuval
The Journal of Socio-Economics, 2011, Volume 40, Number 4, Page 412

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