The Boston Globe ran a front page story on cliff effects, informed by the Center for Social Policy’s research!
Cliff effects happen when small increases in work earnings result in total loss or reduction of key subsidies for food, childcare, and other essential needs, leaving a family worse off than prior to the increase. Cliff effects hamper a family’s ability to advance or develop savings. In spite of working harder or longer, it is virtually impossible for our low-income families to advance.
For the first time, cliff effects are taking center stage at the state and national level. We are at a critical juncture with the incoming administration: with our cross-sector On Solid Ground Coalition partners, the Center for Social Policy’s research is poised to make a significant difference in shaping policy and in the lives of Massachusetts families working hard to move ahead. – Susan R. Crandall, Director, Center for Social Policy, McCormack Graduate School
If it succeeds, a campaign to raise the Massachusetts minimum wage to $15 an hour could put more money in the pockets of low-income workers and create a path to self-sufficiency. But for some families, the boost in pay could mean a drop of hundreds of dollars a month in government benefits.
Food stamps, child care vouchers, and rent subsidies could be cut before families can afford to cover those expenses on their own, leaving some households, particularly single parents with young children, worse off despite a bigger paycheck — a phenomenon known as the “cliff effect.”
A single parent with a 3-year-old and an 8-year-old living in Boston who works full time and receives multiple public benefits, for instance, would see her overall resources drop at the $15-an-hour mark and be no better off until her wages climbed above $24 an hour, according to an analysis by the Center for Social Policy at the University of Massachusetts Boston. Being in this zone, where wages are too high for significant assistance but not high enough to survive, can cause people to turn down raises or extra hours in order to hold on to taxpayer-funded benefits that can be more valuable than a small increase in pay.
“This is a group of people who did exactly what they were told: They’re working,” said Randy Albelda, the UMass-Boston economics professor who conducted the cliff effect analysis. “They find pretty quickly, when I get a raise or my manager wants me to work more hours, uh-oh, I might lose my health care.”
On Thursday, President-elect Donald Trump named Andrew Puzder as his nominee for labor secretary, a move that could energize opponents of boosting the federal minimum wage. In a 2015 op-ed on the political website The Hill, Puzder, chief executive of the company that owns the Carl’s Jr. and Hardee’s restaurant chains, railed against minimum wage increases, arguing that “people get trapped into working less and keeping valuable benefits over working more and losing them.” Instead, he favors expanding the earned income tax credit.
States are free to raise wages independently, and a coalition of workers’ advocates in Massachusetts is in the process of drafting legislation to raise the state minimum to $15.
Nearly 100,000 single-parent households in Massachusetts could be affected by a raise to $15 an hour, according to the Economic Policy Institute in Washington, D.C. Most will end up with more assets, despite a loss of benefits, but some will fall over the cliff.
Already, tradeoffs are taking place.
A Green Line driver for the MBTA has twice declined pay raises, and taken unpaid days off, to keep her pay low enough to retain her child care voucher. A community housing coordinator whose food assistance went down after she took on more hours found that on some days, she could only afford to feed her daughters cereal.
Melina Williams experienced the cliff effect after she took a higher-paying job booking appointments for patients at VA medical centers in Boston last year. The bump from $18 to $20 an hour brought in $320 more a month, before taxes, but caused her child care and rent costs to rise and her food assistance benefits to plummet — adding up to more than $500 in additional expenses every month.
“I actually had more money making $18 than making $20 an hour,” said Williams, a 32-year-old single mother of three who is also taking nursing classes at Regis College. “It leaves you in the position of well, what’s the point? I feel stuck in a cycle that doesn’t make sense.”
Working families are the ones most often perched at the edge of the cliff, and the $15 minimum wage, paying about $31,000 a year for full-time work, could push some of them into the abyss. For a single parent with two kids, one in day care, working full time in Massachusetts, the $15-an-hour mark is around the point where health care premiums and child care fees go up, the child tax credit goes down, along with a continued decline in food stamps, housing subsidies, and earned income tax benefits, according to the UMass analysis.
The problem lies in the way the benefits systems were set up decades ago — to help people who didn’t work, including single mothers and people with disabilities. As a result, the rising incomes of today’s benefits recipients weren’t properly accounted for, nor was the cost of child care, and some assistance programs max out before workers can get to a level where they can survive on their own.
Many benefits are also tied to the federal poverty level, which is based on food costs; it doesn’t account for expenses such as housing that have grown disproportionately and does not factor in regional cost of living differences.
There have been attempts to help people whose benefits are slashed as their incomes rise. Earlier this month, the Department of Transitional Assistance,which administers cash payments and food stamps, started offering a gradually decreasing four-month stipend for low-income workers whose earnings make them ineligible for assistance. The department also recently modified how it calculates clients’ income in order to give them more assistance.
Lisa Novello’s pay has risen over the years from $8 an hour to $17.28 an hour, yet she is no better off than when she started working at a Gloucester secondhand store 11 years ago. All the while, she has kept a careful eye on her hours to keep her housing benefits from declining. When moving from 36 hours a week to 40 means paying more rent and spending less time with her son, now 14, whose father died a few years ago, she said, there’s little incentive to work more.
“The extra money was just going to go in my hand and out my hand, so to me I felt that working more wasn’t worth it, especially because I wanted to be able to be around for my son more when we lost his dad,” she said. “I’m still in the same position I was years ago, treading water, week by week, paycheck to paycheck.”
The fact that social supports could be cut off should be considered in all discussions of bumping up the minimum wage to $15 per hour, Jim Stergios, executive director of the Pioneer Institute, a conservative Boston think tank, said in an e-mail.
“A minimum wage hike of this order would likely result in a mom working full-time with two children losing access to Medicaid and food stamps,” he noted.
Workers’ advocates who support raising the minimum wage to $15 an hour say that now is the time — before wages potentially rise — to reexamine the outdated approach to administering benefits. If it isn’t overhauled, they worry that the cliff effect could become a rallying cry for those who oppose increasing the minimum wage.
“I think what’s going to happen is employers might say, ‘We can’t go to $15 an hour because of the cliff effect,’ ” said Albelda, the UMass professor. “Or [House Speaker] Paul Ryan will say that. So I think a lot of advocates now want to say it’s not a problem or say it’s not true.”
“It’s not the problem of the minimum wage,” she added. “It’s really a problem with how we think about combining employment with public support.”