A Hand Up for the Bottom Third: Toward a New Agenda for Low-Income Working Families

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Abstract
In this paper, we study the impact of proposed changes in work-support policy on low-income families. The incidence of poverty is found to be closely linked to a lack of work. Our analysis shows that, if all able-bodied family heads were to work full-time, the poverty rate would be cut in half. We therefore examine policies that have the potential to encourage and support full-time work among low-wage workers. Specifically, we focus on the minimum wage, the Earned Income Tax Credit, and child care subsidies. We use Census Bureau data to simulate expansions in these policies, focusing both on the initial distributional effects of those expansions and on the labor supply responses that they would elicit. We also estimate the costs of each program, and the work-generated offsets to these costs from higher tax revenues and reduced government benefits. Approximately one third of the population has an income that is less than twice its poverty threshold. We take this "bottom third" to represent the target group for the policies we simulate. We find that, if expansions in work-support policies are successful at bringing new workers into the workforce, the gains in income among the bottom third can exceed the amount spent by the government on those expansions.