Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway

Altig, David; Ilin, Elias; Ruder, A.; Terry, Ellyn

doi:10.29338/dp2020-01

Cited by 3 publications

(7 citation statements)

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“…The idea for the CLIFF tools emerged from research conducted jointly by economists and community development researchers (Altig et al 2020). Focus groups with coaches and workers, together with numerous presentations to business leaders, community development professionals, and elected officials, informed the development of the pilot version of the tools.…”

Section: Focusing On the Worker's Long-term Outcomesmentioning

confidence: 99%

“…However, the financial promise of career pathway advancement may not be a reality for all workers. For example, Altig et al (2020) show that for some workers on public assistance, the higher-paying occupations along a career path may not offer a compelling financial gain. The higher pay associated with the more advanced occupations may result in benefits cliffs (when an income increase triggers means-tested public assistance losses that make a worker worse off financially), or benefits plateaus (when an income increase triggers public assistance losses that make a worker no better off financially), both of which reflect high effective marginal tax rates on earnings.…”

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confidence: 99%

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Primary issue:The Atlanta Fed's CLIFF tools provide greater transparency to workers about potential public assistance losses when their earnings increase. The tools estimate eligibility for public assistance programs and the dollar amount of benefits, both in the current year and for future years along a career path. These features are intended to help a worker estimate the financial impact of a proposed earnings increase, reducing uncertainty and allowing the worker to plan for potential losses in public assistance. The CLIFF Tools National Pilot Implementation Evaluation was conducted to get feedback on tool functionality and to identify challenges that organizations face when adopting benefit cliff calculators like CLIFF.

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Section: Focusing On the Worker's Long-term Outcomesmentioning

confidence: 99%

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“…Some participants noted that many clients would likely opt for the lower-paying job because it seemed more consistent and smooth. 13 See Altig et al (2020) for more details about these calculations. Several participants also added that labor market information alone would not be enough to motivate their clients to enroll in training.…”

Section: Counselors Provide Limited Labor Market Information To Clients Weighing Their Employment Optionsmentioning

confidence: 99%

“…Figures available on page 44 of "State and County Budgets" supplement from the Alice Report, available at www.unitedforalice.org/florida. Last accessed March 11, 2020.2 For these calculations we use a similar methodology to that described inAltig et al (2020), but in this example we analyze a single parent with one child age three paying $1,200 per month in rent.…”

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confidence: 99%

“…According toFoster and Rojas (2018), about half of government means-tested assistance goes to families with children. Of families on means-tested programs, on average, there are 1.3 earners in the family and 2.1 children under 18.8 SeeAltig et al (2020) for more information on the methodology we use to produce these figures.9 We include only expenses that can be reduced by a government benefit.…”

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Benefits Cliffs as a Barrier to Career Advancement for Low-Income Adults: Insights from Employment Services Providers

Ruder

Siwicki²,

Terry³

et al. 2020

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Means-tested public programs and progressive tax incentives offer critical financial support to millions of low-income families and individuals. However, small changes in employment income can lead to an abrupt or gradual loss of benefits, creating a possible disincentive to enroll in training and obtain a higher-paying occupation. To help clients advance in their careers, caseworkers and other employment service providers must consider a complex set of benefits eligibility rules, support services to address barriers to employment, and labor market information to guide training and employment decisions.

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2023

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The structure of the United States social safety net features phaseouts of public assistance as household income increases, which can function as an effective marginal tax on wage gains, commonly referred to as a "benefits cliff." These so-called benefits cliffs create a disincentive for low-income workers, especially those with children, to accept higher-paying jobs or promotions. This paper describes how benefits cliffs can affect the financial resources of a single adult, one child family living in the District of Columbia (DC) and introduces the DC Career Mobility Action Plan (Career MAP) pilot program, which serves as a benefits cliff mitigation strategy for participants. Key findings:• Due to the co-occurring phaseouts of multiple transfer programs, or benefits cliffs, a hypothetical single adult, one child (aged three) family living in DC would receive no financial gain from a wage increase between $11,000 and $65,000 of earned income. • Prior to program enrollment in DC's benefits cliff mitigation pilot (Career MAP), the financial disincentives presented by benefits cliffs and high effective marginal tax rates are most pronounced for families with incomes between 50-150 percent and 325-349 percent of the Federal Poverty Level. • When DC's pilot Career MAP's benefits cliff mitigation strategies are implemented, median effective marginal tax rates decrease for program participants across all income levels. Takeaways for practice:The analysis shows that a Hold Harmless Fund (HHF) provision for four major social safety net programs-Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), childcare subsidies, and public health care-considerably reduces effective marginal tax rates compared to the status quo, keeping them below 100 percent and helping families avoid experiencing benefits cliffs. While our analysis showsThe Federal Reserve Bank of Atlanta's Community & Economic Development (CED) Discussion Paper Series addresses emerging and critical issues in community development. Our goal is to provide information on topics that will be useful to the many actors involved in community development-governments, nonprofits, financial institutions, and beneficiaries. Find more research, use data tools, and sign up for email updates at atlantafed.org/commdev.

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Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway

Abstract: The authors investigate the financial disincentives to career advancement caused by benefits cliffs, which occur when earnings gains are offset by the loss of means-tested public benefits.

Cited by 3 publications

References 12 publications

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Benefits Cliffs as a Barrier to Career Advancement for Low-Income Adults: Insights from Employment Services Providers

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