Longer-Run Effects of Anti-Poverty Policies on Disadvantaged Neighborhoods

Abstract

We estimate the longer-run effects of minimum wages, the Earned Income Tax Credit, and welfare on key economic indicators of economic self-sufficiency in disadvantaged neighborhoods. Our strongest findings are twofold. First, the longer-run effects of the EITC are to increase employment and to reduce poverty and public assistance, as long as we rely on national as well as state variation in EITC policy. Second, tighter welfare time limits also reduce poverty and public assistance in the longer run; while the effect on public assistance result may be mechanically related to loss of benefits, the effect on poverty is more likely behavioral. It is harder to draw firm conclusions about minimum wages and welfare benefits. With some specifications and samples, the evidence suggests that higher minimum wages lead to longer-run declines in poverty and the share of families on public assistance, whereas higher welfare benefits have adverse longer-run effects. However, the evidence on minimum wages and welfare benefits is not robust – and the estimated effects of minimum wages are sometimes in the opposite direction, including when we restrict the analysis to more recent data that is likely of more interest to policymakers.