UC Irvine

Two of the most important economic policies in the United States, especially for low-income individuals and families, are the minimum wage and Earned Income Tax Credit. This dissertation explores various dimensions of these policies and how individuals respond to them.

The first chapter explores the response of commuting patterns across state borders to cross-border differentials in the minimum wage and EITC. The main results show a $1 increase in the minimum wage differential is associated with a 0.5 to 1 percentage point increase in the probability of commuting for minimum wage-eligible groups, approximately a 15-25 percent increase. Results for the EITC are less precise and show that a 0.1 increase in the phase-in rate differential is associated with an increase in commuting probability of 0.9 percentage points, a result that is not statistically different from zero.

Chapter 2 utilizes a Hierarchical Bayesian framework to estimate the effects of the minimum wage on employment in the United States using 400 elasticity estimates from 18 studies. The Bayesian Hierarchical framework allows probability statements to be made about any number of elasticity estimate ranges. Estimates from the preferred clustering method show that the probability the minimum wage has negative effects on employment is 0.731. Additionally, the probability that the elasticity between the minimum wage and employment is more negative than -0.100 equals 0.440.

As Chapter 3 discusses, one of the EITC's primary goals is to encourage labor force participation, especially for single mothers, but analysis of these effects is complicated by endogeneity issues as fertility, marriage, and educational decisions, which are typically used to define eligible and ineligible groups, are all theoretically endogenous to the EITC. By utilizing birth timing around the end of the calendar year, this paper identifies a source of arguably exogenous variation in EITC payments, albeit for mothers with newborn children. Using the Study of Income and Program Participation, results show positive employment effects for unmarried women, especially those with a high school degree or less. Additionally, I find evidence of a negative employment response by low-ed unmarried women, but this result is less robust. I argue that the mechanism through which these effects occur is the acquisition of knowledge about the EITC and its benefits.