Working Paper

Racial Disparity in Labor Market Response to the EITC

Yang Jiao, Department of Business of Public Policy, Young Harris College

Yi Lu, School of Economics and Management, Tsinghua University

Xiaohan Zhang, Federal Reserve Bank of Dallas

Abstract


The Earned Income Tax Credit (EITC) is the federal government’s largest cash assistance program for working families. This research aims to understand the extent to which the EITC affects black and white households differently. The empirical analysis shows that after the EITC expansion, single women of either race experienced a considerable increase in employment and income, but among those who were married, only black women saw a meaningful change in these measures. These racial disparities also imply that the EITC lifts more black families with children out of poverty. Our findings on the disparities among married families can be explained by racial differences in intrahousehold labor supply decisions.


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