Question

In your own words, explain (briefly) why economists generally regard wage subsidies like the Earned Income Tax Credit (EITC) as better policy than minimum wage laws. Be sure to note at least one downside of the EITC.

Answer 1

Answer :-

Increasing the earned income tax credit will do more to reduce poverty at less cost, further it increases the minimum wages.

Increase of minimum wages are not an effective mechanism for reducing poverty and there is a little causal that they do so. Most of the workers who gains from increasing in their minimum wages do not belong to poor families, they lose their jobs because of such increase.

The earned income tax credit is an effective way to reduce poverty. It raises only the after tax wage rates of workers in low and moderate income families. Their tax credit and increased in the number of dependent children and evidence shows that it increases labor force participation and employment in these families.

The EITC is a complicated program that leading to administrative difficulties and a high error rate. Eligibility requirements for the EITC depends on several factors such as resulting in confusion and improper payments.