Small raises can cost workers big benefits
A small raise can have a significant impact on lower-wage workers, potentially pushing their household income past a limit and ending their eligibility for benefits such as child care, food, housing, or health coverage. This phenomenon is known as the “benefits cliff.”
According to Dr. Steven C. Taylor, Founder of ED2WORK and Co-Author of Together We Climb: A Community-Driven Approach to Break the Cycle of Poverty and Build Prosperity, a raise of just $1,000 per year can cost someone up to $20,000 in safety net benefits.
The Benefits Cliff Explained
Taylor notes that the benefits cliff limits the opportunity for Americans who rely on safety net programs to fully contribute, and that even a small increase in earnings can push a worker over an income threshold.
A worker may turn down a raise or promotion because it would result in a loss of benefits, which can be a difficult decision. Taylor says that workers in this position are essentially balancing two ledgers: one for safety net benefits and one for income and bills.
Addressing the Benefits Cliff
Employers can start by asking employees how a raise, promotion, or more hours would affect them before making the offer. This can help to identify potential issues and find alternative solutions.
Taylor suggests that non-monetary recognition, such as flexible start and end times or on-site child care, can help workers who may not be able to accept a raise due to the benefits cliff.
Business owners can also act as connectors, working with other community leaders and business owners to solve these problems together. By educating policymakers and advocating for gradual benefit phase-outs, employers can help to create a more supportive environment for their employees.
They can help create a system that allows workers to progress up the economic mobility ladder without being penalized for their success. As Taylor notes, “We’re punishing people at the very moment that we want them to progress up their mountain climb, or up that ladder of economic mobility.”
It is clear that the benefits cliff is a significant issue that affects many lower-wage workers. Dr. Steven C. Taylor and ED2WORK are working to address this issue and create a more supportive environment for workers.
