The Effect of Earned Income Tax Credit on Female Labor Supply and Gender Wage Gap

Abstract

Using CPS-MORG data for the years 1990-999, I conduct a two-part study on the effects of the Earned Income Tax Credit (EITC) on women’s labor market and earnings. Using a quasi-difference-indifference model, I first study the relationship between the EITC and the female labor supply and then examine the effect of EITC on gender wage gap. I find that a $1000 increase in the maximum EITC credit offered in the female labor market leads to a 6-percentage point increase in the employment rate. For the gender wage gap study, I find no significant results showing that the EITC impacts wage gap in any particular direction.