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Notes from the Field

When Benefits Cliffs Turn Raises into Penalties, Local and National Efforts Help Workers and Employers Navigate Options

Getting a raise is usually a good thing. But what if it comes at the cost of losing a benefit that you rely on? Here’s what some organizations are doing to help workers navigate the path to economic independence.

Getting a raise is usually a good thing. But what if it comes at the cost of losing an important benefit that you rely on—food or housing assistance, Medicaid payments, or childcare vouchers, for instance? Layer on the uncertainty of current day-to-day challenges—navigating changes in transportation availability, school closings, exorbitant daycare costs, and the rising price of necessities such as groceries, gas, and diapers—and suddenly that raise becomes a complex calculation to consider instead of a welcome increase.

The lowest-paid workers have experienced higher wage increases, on average, than other groups over the past two years, according to the Atlanta Fed’s wage growth tracker. But the reality is that, for many, a wage increase may not be beneficial—at least in the short term—due to the “benefits cliff,” which refers to the, sometimes swift and severe, loss of public benefits as a family’s income increases.

The purpose of public benefit programs is to temporarily aid households when their income is not sufficient to make ends meet. Yet, the structure of the benefits programs and their eligibility requirements can be an obstacle for those seeking jobs or moving into higher-paying ones. For example, taking a job that pays $14 per hour instead of $10 per hour can result in a family’s having more out-of-pocket expenses than before the raise. If, for example, the income increase eliminates a family’s $700 monthly food benefits, but the raise adds only $600 to their total monthly income, the increase is not enough to cover the loss of assistance. And though the nation’s COVID-19 public health emergency (PHE) declaration ensured that individuals receiving Medicaid would not lose benefits despite increases in income, the relief is temporary: Once the PHE is lifted, standard income thresholds will be reinstated, and many individuals stand to lose this critical benefit.

Understanding the benefits cliff in a local context

For policymakers, it’s important to understand how eligibility thresholds can be barriers for workers as they move toward self-sufficiency. In Ohio, there are several organizations engaged in this issue through research, advocacy, and community engagement. For example, research from the Women’s Fund of the Greater Cincinnati Foundation identified impacts of the benefits cliff on workers in several Ohio counties and developed a set of recommendations, including ones to expand eligibility thresholds for food stamp and childcare benefits, to mitigate the losses. The Center for Community Solutions (CCS), a nonpartisan think tank, is engaged in benefits cliff conversations throughout Ohio. Their research on the effects of the benefits cliff on workers pursuing advancement in the healthcare field found that the loss of childcare and Medicaid benefits had the most significant impacts on workers’ path to self-sufficiency.

Some public benefits phase out gradually, so workers may continue to receive some assistance as they increase their income. Other benefits are cut off as soon as a recipient’s income exceeds the eligibility requirement. Knowing which public benefits are the largest obstacles for career advancement can inform conversations related to programmatic changes, such as expanding eligibility, that support workers as they seek higher-paying jobs. The Children’s Defense Fund Ohio has proposed options Ohio’s legislators might consider to lessen the impacts of the benefits cliff on low-income working families. A recent CCS report identifies a number of ways to adjust public benefits program requirements, such as providing work exemptions for those in post-secondary programs, to incentivize low-income adults to move up the career ladder.

Beyond the research: Helping workers navigate the cliff

For workers, it’s important to know when increases in income will result in losses of benefits so that they can make informed choices about their career progression. With this in mind, the Atlanta Fed has developed the Career Ladder Identifier and Financial Forecaster (CLIFF)—a set of four tools for nonprofit organizations, state workforce agencies, employers, and funders to help workers understand how benefits change with increases in income.

Currently, the Atlanta Fed is engaged in 50 partnerships within 22 states across the nation. The CLIFF Dashboard is an interactive tool that depicts wages along select career pathways to show when the loss of public benefits is greater than the increase in income and the worker is financially worse off. The CLIFF Planner allows users to weigh potential income increases against public assistance losses so they may plan career paths while considering benefits, taxes, and expenses over time; the tool is intended for more intensive career and financial counseling of low-income families. The CLIFF Guaranteed Income Dashboard provides information about the impact of guaranteed income on public benefit program eligibility. The Policy Rules Database (PRD) Dashboard illustrates how increasing income impacts both eligibility of benefit programs and dollar amount provided in places across the United States.

In partnership with the Atlanta Fed, the Cleveland Fed recently engaged with the Ohio Department of Job and Family Services (ODJFS) to provide resources for their Benefit Bridge program. In this pilot, six Ohio counties employ a two-phased approach to “implement and evaluate four initiatives to better engage, prepare, and support our most vulnerable Ohioans for long-term economic independence.”1 As part of the program, participants will partner with a support team trained to prepare them for career success.

Looking forward

The Atlanta Fed customized their CLIFF tools for each of Ohio’s pilot sites to reflect local wages, local living expenses, and state-specific public benefit eligibility rules. The Cleveland Fed will use the information collected from ODJFS’s use of the CLIFF Dashboard and Planner to better understand barriers to economic mobility and career advancement in our District and what policies and practices can help address these issues. As the pilot progresses, we will gather feedback on how the tools are being used, any challenges users have, and suggestions for improvement. With this information, we can better understand how families are navigating the benefits cliff and any obstacles they encounter as they seek to move up the economic ladder.

If you are interested in learning more about using these tools in your organization, contact Eli Stacy or visit the Atlanta Fed’s Advancing Careers initiative.

The views expressed in this report are those of the author(s) and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System.