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Friday Webinar: The Benefit Cliff

February 19, 2021
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February 19, 2021  

Usually, the more money you earn, the better off you are. But for some working families, getting a raise may actually make their financial situations worse. Community Solutions held a webinar Friday, February 19 to discuss the benefit cliff — what it is and what its effect is in states across the country – including Ohio.  

Associate Director Emily Campbell presented on her research which was sponsored by the Office of Family Assistance, an office of the Administration for Children and Families of the U.S. Department of Health and Human Services.  

Click here to see a recording of the webinar, scroll below to see questions and answers form the webinar and Click here to download a pdf of the slides, or scroll through them in the gallery below.  

Benefit Cliff Webinar Questions and Answers

Emily Campbell, Associate Director and Williamson Family Fellow for Applied Research

The questions below were submitted by participants during “The Benefit Cliff” webinar presented by The Center for Community Solutions on February 19, 2021.

Q: Have you compared your trend lines to where families would be with none of these programs? Doing so would make clear that even with benefit cliffs, families are better off with these programs than without them….absent that baseline, it would be easy to misinterpret the “takeaways” from these data.  

Q: Seems that if there were no public benefits, there would be no cliffs. Individuals would then be highly motivated to obtain employment, improve their skills, etc. to increase their earnings. Your thoughts, Emily?  

A: Without any public benefits, this family would be much further behind on every single point on the model until they reach $28 per hour and are no longer receiving any benefits. Doing a very quick calculation, at the $8.70 minimum wage, this family would be more than $1,900 behind every single month, rather than the $91 we show them behind with benefits. At $16 per hour, even though they are in the midst of a cliff, the model has them $28 behind. Without any benefits, they’d be nearly $850 behind.  

So yes, without any benefits you don’t have any cliffs. But the family’s financial circumstances would be MUCH worse. We’d see significantly higher levels of human suffering. People who are literally starving find it difficult to improve their skills, just like hungry kids can’t learn in school.  

Studies out of Colorado, Indiana, and Cincinnati have found that most people accessing public benefits are already highly motivated. The problem comes when they feel they are being “punished” for trying to move forward in their career, especially if it is unexpected. Due to time, we glossed over this during the webinar. This issue of helping workers pass cliffs is where much of my work in other states has focused. You can get a link to that research here: https://comsolutionst.wpengine.com/ohio-working-families-face-benefit-cliffs-plateaus/  

Q: Where are transportation costs covered in your family budget?  

A: Transportation costs are included in the model as one of the seven categories of expenses that make up the basic monthly budget. The estimate for transportation cost is based on national survey data on the amount families actually pay for car maintenance, insurance, and gas. It does not include car payments for new or used vehicles. We don’t talk about transportation much when presenting the model because there are not government benefit programs that help with the cost of transportation.  

Q; Housing assistance is not an entitlement but there are many different housing resources/programs which serve people at various income level. Which housing program was used in your research?  

A: The model uses the housing subsidies through the U.S. Department of Housing and Urban Development. So public housing or the Housing Choice Voucher Program (Section 8).  

Q: Can you talk about the pending State Bill 17 or 18? you referenced several times?  

Q: If the bill currently being considered in Columbus will clearly get people worse off, what can be done to affect it?  

A: Senate Bill 17. The proposed legislation is here: https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-SB-17  

Advocates for Ohio’s Future is a coalition working on this issue. More info is here: https://www.advocatesforohio.org/news/join-the-fight-against-sb-17  

Q: What was the timeframe for this hypothetical model? How many years does it take for the person in this to get from minimum to a livable wage?  

Q: What was the timeframe for the hypothetical model? How much time passes between raises?  

Q: How realistic is it that someone can continue to function until they get to $30.00, especially undereducated individuals?  

A: Great question! The Community Solutions Benefit Cliff Model does not take time into consideration. We assume that one child was in preschool and one was school-age throughout the entire model. That means that the family has the same child care expenses at the beginning as they do at the end.  

The report from the Federal Reserve Bank of Atlanta DID take time into account and the fact that the children grow up and child care expenses fall is one factor leading to their finding that every step on the career ladder would mean a family is better-off in the long term. Check that out here: https://www.frbatlanta.org/community-development/publications/partners-update/2020/01/200226-research-on-understanding-and-overcoming-benefits-cliffs  

We also look at a very smooth increase of $1.00 per hour. In reality, something pretty significant would need to change for someone to go from minimum wage to $30 per hour. The most likely scenario is that the person gets a college degree or additional credentials. But we do not account for the cost of that education in our model, nor do we look at whether someone would need to cut back their hours or take themselves out of the workforce completely while they are in a training program.  

It is a real challenge facing many Ohio families. In fact, not having enough money to make ends meet has been identified as one of the Adverse Childhood Experiences, shown to have life-long effects on health. Living in poverty is one of the causes of toxic stress. On the other hand, people are innovative and many families find ways to do alright and have some level of stability and financial security even at incomes that are below what researchers show as the living wage.  

Q: Given where families seem to fall on the benefits cliff when making $15/hour, do you see the call to raise the minimum wage to $15/hr as being helpful?  

Q: What is the anticipated effect on government provided benefits (Child Care Subsidies, SNAP, ect.) when/if the minimum wage changes to $15/hr?  

A: A higher minimum wage means more money for working families and that is always an improvement if we are seeking to reduce poverty. However, let’s look at it strictly from the perspective of the Community Solutions Benefit Cliff Model, and leave aside for a moment the fact that an increase in minimum wage could me a dramatic improvement in financial circumstances for many low-wage Ohioans. According to our model, for this hypothetical family, $15 per hour is right in the middle of the point where our family of three would be losing benefits. In addition, I have concerns about the impact on Ohio’s child care benefit. In Ohio, once you meet that low-income initial eligibility criteria for child care subsidy, you can remain on the program as your income increases. However, under the current design, someone working full time making $15 per hour would not meet the initial eligibility criteria. So unless our hypothetical family starts with part-time work, they would never be able to access those benefits. This is why policymakers should consider the full income and benefits package when considering how to help low-income Ohioans move toward economic independence.  

Also, $15 is well below the Living Wage calculated by MIT, which shows the amount a family would need to earn to be able to make ends meet without any outside help. Anything that helps families have more household income improves poverty rates, and a $15 minimum wage would certainly help. But it won’t solve the entire problem of working poor families.  

Q: If and when the minimum wage is increased to $15/hr. Will the benefit threshold increase? This is real!  

Q: Do you have any information that says income levels will be adjusted up as minimum wages increase? Or moved to a sliding scale?  

A: No. Where those poverty guidelines fall have no relationship to minimum wage, and I have not heard any discussion of moving to a different sliding scale. Eligibility for most public benefit programs are set based on the Federal Poverty Level guidelines. That guideline was set based on the cost of a “basket” of food in the 1960s, multiplied by three. Since then, it is updated annually based on inflation – and that’s it!  

As a side note: Ohio’s minimum wage is also set to increase each year based on inflation. And Ohio’s minimum wage and FPL use the same inflation measure. So although Ohioans earning minimum wage got a raise in January, it didn’t change their percent of FPL because 100 percent of FPL increased by the same percentage.  

Q: In your research have you come across any efforts to address these cliffs while still increasing the minimum wage? Has there been any success in increasing wages while preventing benefit cliffs?  

A: I haven’t heard of any. But New York might present some interesting case studies in the future. They are right in the middle of gradually increasing state minimum wage to $15 per hour and it’s already that high in some parts of the state. Keep in mind that it’s not just about wage. We also hear from employers that hourly-wage workers decline additional hours because they could lose their public benefits. This is why it’s so important to think of the full income-benefits picture. It’s all related.  

Q: SO, what are your thoughts about a Federal Minimum Wage … does it influence states to raise their minimum wage? … or not?  

A: I haven’t looked at this issue. Right now, Ohio’s minimum wage is governed by a constitutional amendment passed by voters in 2006 which says it increases every year based on inflation. Ohio’s minimum wage is above the federal floor, but it’s not tied to the Federal Minimum – except for 14 and 15 year olds (which was new information for me and I found out when confirming this answer). I have not heard any discussion about setting Ohio’s state wage at Federal Minimum Wage +$1.55, for example, which is where Ohio is right now. It would take another constitutional amendment.  

Q: So Washington and New York have higher min. wage but cost of living, which i am sure includes increase in taxes, are in worse shape than Ohio. SD doesn’t have state tax - that helps SD. So it seems a higher min wage does not necessarily improve households ---am i correct? if so how do we fix it?  

A: Correct. Wages are just one part of the picture. Cost of living and benefit design are two other important factors. Side note: Ohio is one of very few states that has both local and state income taxes. Washington State doesn’t have either.  

Q: Seems to me that the 15$ hour wage would raise the floor/price on a lot of things: rent immediately comes to mind….as does gasoline. Has anyone studied this? I have looked for it and not found that kind of "study/analysis."  

A: The analysis is probably historical and related to inflationary drivers. It’s been years since I’ve looked at any of that information, and I can’t speak to trends off the top of my head. What I can say is that I was an economics major, but reality almost never follows perfect economic models. Also keep in mind that only part of the “going rate” for prices is based on people’s ability to pay. As mentioned previously, we have a case study right now in New York State as they gradually increase minimum wage. That might be another place to look for such analysis. It’s probably too early to tell.  

Q: So, when the child care co-payment exceeds the private-pay rate, people end up paying more than the general public. The co-pay is a percentage of family income vs. a percentage of the actual cost of child care.  

Q: Hate to harp on this, but what if the co-pay for subsidized child care was based upon the cost of care rather than a percentage of family income? The PIP utility program also operates as a % of income model.  

A: Yes. Ohio’s child care assistance program is set up so that copayment is tied to the family’s income. It is not tied to the cost the child care provider charges. States can always change benefit designs, but then they have to make sure they are paying for those benefits with state dollars. I’m not sure that Ohio could tie the subsidy a family receives to cost of child care rather than family income change without fiscal consequences. That’s because most states, including Ohio, utilize federal dollars to pay for much of their child care subsidy program from the Child Care & Development Block Grant (CCDBG – not to be confused with the more well-known CDBG which is a completely different program). There are certain regulations about how state benefit programs that use CCDBG have to be designed. I’m not an expert on this.  

Q: What if you are working part time working 25 hours per week and are making 9.00 per hour, and I am over 60 will I lose my benefits?  

A: Unfortunately, our benefit cliff model doesn’t allow us to look at individual circumstances. But I can say that earning $9.00 per hour and working 25 hours per week for the full year would be an annual income of $11,700 which would put even a single person below the Federal Poverty Level for a family of any size.  

Q: In her work, does Emily have a sense of how this compares to other countries that have socialized/universal health care? Are there fewer cliffs in those countries?  

A: We haven’t looked at other countries in any detail. It is my impression that eligibility and benefit design is more complex in the U.S. than in many other countries. Remember that a cliff happens when a benefit disappears before increased earnings are enough for the family to afford the increase in their monthly expenses. Of course, where there is universal health care, there would be no cliff caused by parents or children losing Medicaid coverage – but there might be other cliffs. Things like universal basic income or universal child care that we see in other countries also presumably mean there are no cliffs, but I haven’t studied it.  

Q: Is the "rollercoaster" pattern of movement out of poverty due to the fact that the person/family is moving into a different financial paradigm…one that they have no tools/experience dealing with?  

A: When we mention “rollercoaster” in relationship to our benefit cliff model, we mean that there isn’t just one cliff standing between poverty and economic independence. Instead, the Community Solutions Benefit Cliff Model shows several points where the hypothetical family could have less ability to pay for their basic needs, despite earning more.  

But yes, there is a big difference between circumstances for workers who are earning minimum wage and those who are earning $30 per hour. I’d suggest that it’s probably a much improved paradigm. Numerous studies have shown that facing challenges to meet basic needs have profound and long-lasting effects on health and well-being. The challenges that come with earnings pale in comparison.  

Q: I have always wondered WHY the Federal ANYTHING was an average of 51 political unites…..when costs of living in 51 states are different, sometimes by 10-12% +/-. Please comment on this.  

A: 50 states in the US, 88 counties in Ohio, circumstances are different in communities across the state and across the country. This is one of the many criticisms of official poverty measures. They do not account for differences in cost of living. $21,000 per year in Ohio goes much further than $21,000 in New York City.  

Q: Regarding upcoming bridging the benefits gap effort, where can I find more information to at least follow for updates?  

A: Community Solutions’ policy team will be following this closely, so be sure to be on our email list for updates.  

Q: Do we have programs that focus on building stronger families with 2 working parents, or programs that educate people on family planning, or having children when they can afford them?  

A: Yes, programs with those goals exist in Ohio. They are outside the purview of the Benefit Cliff Model.  

Q: A lot of housing programs are not available to everyone. Are there other housing programs to assist families with?  

A: There are some. I recommend reaching out to your local 2-1-1 to find out specific programs which may be available in your area.  

Q: What would be the impact of the Mitt Romney proposal?  

A: I’ve looked at the other proposal floating around right now, to increase Child Tax Credit, more closely than the one proposed by Senator Romney. However, data shows that refundable tax credits are currently the most effective government program to reduce child poverty. If carefully designed, improvements to refundable tax credits can have a immediate and profound impact to help alleviate poverty for low-income families with children. I saw one estimate that the Biden proposal would benefit around 95 percent of Ohio children.  

Q: How does SSI work with the cliff? My son is on the autism spectrum, getting SSI and working part-time at Krogers. It's already crazy with his SSI amount changing every month.  

A: The Community Solutions Benefit Cliff Model doesn’t look at SSI. But yes, any benefit program that provides different benefit amount based on how much someone earns could cause a cliff. Data from the US Census Bureau Supplemental Poverty Measure shows that year after year, Social Security programs including SSI pull more Americans out of poverty than any other government activity.  

Q: Is there any study including people with Disabilities, transportation as expenses, … and other factors?  

A: As described above, transportation costs are included in our model. But Community Solutions has not studied those other issues. From the questions here, I wonder if a future research question might be about SSI and SSDI.  

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