The incentives for employers and their interest groups are clear. Employers must cover the costs of minimum wage increases, but citizens bear all the costs of the EITC. Further, the EITC generates some distinct benefits for businesses. Nearly 20 percent of beneficiaries use their EITC refunds to facilitate their labor force participation—such as buying clothes and cars for employment. 70 To the extent that the effects of the EITC on wages has been studied, they confirm a pattern of restraining real wages, effectively subsidizing employer’s contributions. A 10 percent increase in EITC generosity is associated with a 5 percent fall in wages for high school dropouts, a 2 percent loss for those with just a high school diploma, but negligible effects for those with higher education.
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