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The Optimal Minimum Wage and EITC

Miki Malul (Ben Gurion University, Department of Publuc Policy and Administration) & Israel Luski (Ben-Gurion University of the Negev, Department of Economics) have posted Optimal Policy of Minimum Wage and Earned Income Tax Credit on SSRN.  Here is the abstract:

The main purpose of this study is to explore the effects of a minimum wage and earned income tax credit on the learning, training, employment, and income of workers with a low cost of investing in training and a long horizon of earnings and those with a high cost of investing and a short horizon of earnings. We present a theoretical framework of the impact of a minimum wage and earned income tax credit on training and employment. The results reveal that the optimal social policy would be to use both a minimum wage and earned income tax credit with a high minimum wage for workers with a low cost of investing in training and a long horizon of earnings and a low minimum wage for workers with a high cost of investing and a short horizon of earnings. The earned income tax credit should only be applied to workers with a high cost of investing and a short horizon of earnings.


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