Inequality at the margins: The effects of welfare, the minimum wage, and tax credits on low-wage labor

Politics and Society

Volumn 25, Issue 4, 1997, Pages 513-524

  Hout, Michael ^a  

^a NONE

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EID: 0031285863     PISSN: 00323292     EISSN: None     Source Type: Journal    
DOI: 10.1177/0032329297025004006     Document Type: Article

References (22)

1. McCrate uses the same educational restriction but analyzes Black women's and White women's wages separately.
2. The scatter of points appears to incline even more than the gray line suggests. That is because other factors, statistically controlled by McCrate, produce state-to-state variation that, though related to variation in welfare benefits, cannot be ascribed to them. Most notable among the other factors is state-to-state variation in the minimum wage.
3. See Claude S. Fischer, Michael Hout, Martín Śnchez-Jankowski, Samuel R. Lucas, Ann Swidler, and Kim Voss, Inequality by Design: Cracking the Bell Curve Myth (Princeton, NJ: Princeton University Press, 1996), chaps. 1 and 6, for a discussion.
4. David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, NJ: Princeton University Press, 1995), chap. 9; Richard Freeman, "How Much Has Deunionization Contributed to the Rise in Male Earnings Inequality?" in Uneven Tides: Rising Inequality in America, ed. Sheldon Danziger and Peter Gottschalk (New York: Russell Sage Foundation, 1994), 100-21; John DiNardo, Nicole M. Fortin, and Thomas Lemieux, "Labor Market Institutions and the Distribution of Wages, 1973-1992," Econometrica 64 (1996): forthcoming.
5. David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, NJ: Princeton University Press, 1995), chap. 9; Richard Freeman, "How Much Has Deunionization Contributed to the Rise in Male Earnings Inequality?" in Uneven Tides: Rising Inequality in America, ed. Sheldon Danziger and Peter Gottschalk (New York: Russell Sage Foundation, 1994), 100-21; John DiNardo, Nicole M. Fortin, and Thomas Lemieux, "Labor Market Institutions and the Distribution of Wages, 1973-1992," Econometrica 64 (1996): forthcoming.
6. David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, NJ: Princeton University Press, 1995), chap. 9; Richard Freeman, "How Much Has Deunionization Contributed to the Rise in Male Earnings Inequality?" in Uneven Tides: Rising Inequality in America, ed. Sheldon Danziger and Peter Gottschalk (New York: Russell Sage Foundation, 1994), 100-21; John DiNardo, Nicole M. Fortin, and Thomas Lemieux, "Labor Market Institutions and the Distribution of Wages, 1973-1992," Econometrica 64 (1996): forthcoming.
7. Sheldon Danziger and Peter Gottschalk, America Unequal (Cambridge: Harvard University Press and Russell Sage Foundation, 1995), 148-50.
8. George J. Borjas, "The Economics of Immigration," Journal of Economic Literature 32 (1994): 1667-717.
9. George J. Borjas, Richard B. Freeman, and Lawrence F. Katz, "Searching for the Effect of Immigration on Labor Markets," American Economic Review 86 (1996): 246-51.
10. There is a school of thought that suggests that they are implicitly more expensive than otherwise comparable individuals. The argument stresses that they have chosen not to work at the wages that prevail for individuals like them; therefore, their implicit wage must be higher than what employers offer them (if it were not, they would take the job offer). This is a misunderstanding of "reservation wages" - see James J. Heckman, "Shadow Prices, Market Wages, and Labor Supply," Econometrica 42 (1974): 679-94. The idea of a reservation wage applies when the people choose between working for pay and leisure. It does not apply when they have the choice between working for pay and welfare. For people on welfare, the benefits exceed their reservation wage. A cut in benefits gets some of them to leave welfare and take a job that holds them at the standard of living that welfare provided before the cut.
11. Of course there might be a reverse effect, too. In the long run, higher wages mean higher prices for important commodities like housing and food. State legislators often consult these prices in deciding how much to allocate for aid. McCrate designed her statistical analysis to control for this reverse effect.
12. Michael Wiseman, "Knowing Welfare As We End It." Paper presented at the Visiting Scholars Workshop, Russell Sage Foundation, New York, 1996.
13. The 1970 amount was adjusted to 1993 currency using the Consumer Price Index for urban consumers (CPI-U).
14. McCrate estimates the net effect of $100 differences in AFDC and food stamps to be 3 percent. A drop in AFDC of $295 that was not offset by increased food stamps would reduce wages by 9 percent. She estimates that the minimum wage is worth 2 percent for every dime difference. A $2.25 drop would cut wages by 5 percent. Together these add up to 14 percent. Estimates of this type are not always additive, but they are in this case because her model contains both factors.
15. All dollar amounts are in 1993 currency. The data source is the Current Population Survey's "outgoing rotation groups" file. The CPS is the monthly survey that provides important government statistics like the unemployment rate and the Consumer Price Index. Each month one-fourth of the respondents are asked about the wages of working members of their household. They report wages per hour for members of their household who have jobs that pay them on an hourly basis and weekly wages or salary for other kinds of jobs. They also report how many hours per week each worker puts in at that job. To make Figure 3 and the other figures based on this data file, I calculated hourly wage as equal to the reported wage for those paid on an hourly basis, as the ratio of weekly wages or salary to actual hours worked for part-time salaried workers and so-called full-time workers who put in less than forty hours, and as reported weekly earnings divided by forty for those who put in forty hours or more. For reasons known only to the designers of the CPS, the self-employed are not included in the wage data. These data include some wages below the minimum. Mostly they are the wages of people who are not paid hourly. Details are scarce, but a few points are probably true. At low hours of work, subminimum wages are probably "piecework" payments converted to pay per hour. There is also the problem at the other end of people working seventy or more hours; their hourly rate looks quite low. And, of course, some establishments are exempt from minimum wage laws; their employees are an unknown proportion of the subminimum wages in Figures 3 and 4.
16. Card and Krueger, Myth and Measurement.
17. Fischer et al., Inequality by Design, 112.
18. Kathleen Mullan Harris, Teen Mothers and the Revolving Door (Philadelphia: Temple University Press, 1997).
19. Families with two or more earners qualify for EITC. They must file a joint return and combine their earnings as any other couple filing a joint return would.
20. U.S. Bureau of the Census, Poverty in the United States: 1995 Current Population Reports, P60-194 (Washington, DC: U.S. Department of Commerce, 1996).
21. U.S. Bureau of Labor Statistics, Employment Situation: February 1997 (Washington, DC: U.S. Department of Labor, 1997).
22. U.S. Bureau of the Census, Money Income in the United States: 1995 Current Population Reports, P60-193 (Washington, DC: U.S. Department of Commerce, 1996).