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Poverty In Our Area: The Benefits Cliff

Poverty In Our Area: The benefits cliff
Posted Jun 29, 2022 1:05 PM
By Patricia Jones, Alliance Poverty Task Force

Employees sometimes won’t accept more hours, or a raise in pay, or a promotion. For most of us, this is confusing. But it is a rational economic decision for those in poverty, based on something called the benefits cliff, or the cliff effect.

People face the benefits cliff when they receive public benefits from the government, but a raise might put them over the income limit to receive the benefits. However, that increased pay doesn’t begin to cover the value of the benefits they must now pay out of pocket.

An article by Robert Farrington in Forbes Magazine in April, 2021, gives this example: “A family of four in Indiana who earns less than $33,480 could qualify for the Supplemental Nutrition Assistance Program (SNAP, or food stamps) of up to $646 per month. If two members of the household work 30 hours per week and earn $10 per hour, they would earn well below that threshold ($31,200 per year) and retain their SNAP benefits. In the meantime, this family could be receiving a subsidized housing benefit that could easily be worth $500 or more per month.

However, if their income is boosted to $15 per hour, they suddenly earn $46,800 per year. At this threshold, they lose access to SNAP benefits as well as any other housing assistance they might receive. If this family was receiving the full $646 per month in SNAP benefits, $7,752 of their increase in pay would disappear. When you add in any housing assistance received as well as a higher income tax bill, it’s easy to see how boosting hourly wages can have little effect, no effect, or a negative effect on the person originally meant to be helped.”

Most major assistance programs are only available to people whose income is below a certain level. This includes SNAP, subsidized housing, Medicaid or ACA-subsidized health insurance, TANF (Temporary Assistance for Needy Families), the Earned Income Tax Credit, free or reduced school lunch, utility assistance programs, and others.

These programs all have application processes that evaluate a number of factors, so no one really knows when they will be hit by the cliff effect. Even the programs offering the benefits don’t know when the income lines might be crossed. Since people are afraid of losing benefits and being worse off, they are forced to decline those income increases, especially if they think the increased income might be temporary.

The benefits cliff isn’t a big problem for those in situational poverty, people who have had a temporary setback like a job loss or major medical bill. They have received the education and developed the skills needed for success in the labor force. They recognize the opportunities for increased income and movement on the career ladder, and look forward to leaving the benefits behind.

Those in generational poverty, however, do not see how they can earn enough to pay for all the new expenses they will be facing. The cliff effect anchors them into poverty, and may do the same for their children.

America, especially Nebraska, is facing a serious labor shortage. We have seen several businesses in our area close because they simply could not find employees. Many people are aging out of the work force, and the population of Box Butte County is decreasing. Businesses are perpetually recruiting, hiring, and training for the same entry-level positions. Obviously, the best outcome would be to fill the workforce shortage with those who are receiving benefits through the government support programs.

How can we deal with this disincentive to work? Government agencies are beginning to phase out benefits gradually, creating a slope rather than a cliff. Community colleges and other institutions are providing education and training to develop skills required for jobs in the area. Bridges Out of Poverty has developed a program called Getting Ahead, designed to move people out of generational poverty.

The goal for all of us is to achieve economic growth by getting more people into the labor force, decreasing the need for government benefit programs, and ending the cycle of poverty