How many low-wage workers are affected by benefits cliffs and asset limits?

This post is based on the Research Brief entitled The Impact of Benefits Cliffs and Asset Limits on Low-Wage Workers. For more information, read the full study here.

Over 40 million workers in the United States—almost a third of all U.S. workers—receive public benefits. Many of these workers face a unique challenge: They would like to earn higher wages, take on more hours, look for better jobs, or save for emergencies. However, doing so may push them over a benefit program’s income or asset limits, causing them to lose eligibility for the program or to experience reductions in the benefits they need to make ends meet. In fact, earnings or savings increases can sometimes make a worker worse off if those increases do not cover the value of the lost benefits—for example, the loss of financial assistance to pay for childcare. This is called a benefits cliff.

As a financial survival strategy, workers may respond to benefits cliffs and asset limits in different ways:

• not taking additional hours at work
• not taking a raise or promotion at work
• not taking a job offer
• asking to be paid less at work
• keeping their savings below the limit set by a program
• changing their family structure (e.g., not getting married)
• not accepting child support

In forcing workers to make these choices, benefits cliffs keep them from advancing financially and decrease participation in the labor market. Though the effects of benefits cliffs are far-reaching, the full scope of the issue is unknown. As part of our nationally representative Workforce Economic Inclusion and Mobility (WEIM) survey of low-wage workers, we examine the rates at which these workers are affected by benefits cliffs and the actions they take to stay on those benefits.

Low-wage workers participating in public benefit programs were asked whether they had taken any of the actions listed above to maintain program eligibility. We refer to these as benefits cliff experiences. As Figure 1 shows, approximately one out of every five low-wage workers on public benefits reported at least one benefits cliff experience. The most common action reported was not taking on additional hours, with 11.1% of program participants reporting that they made this decision.

Additionally, workers with benefits cliff experiences frequently had more than one kind. Of those who reported any response to benefits cliffs or asset limits, more than half (57.9%) reported multiple responses and 9.2% reported engaging in four or more of the behaviors we measured. Figure 2 shows how these behaviors correlate with each other. All responses are moderately or strongly correlated with one another, showing that benefits cliffs affect public benefits participants’ financial and personal lives in multiple ways.

These findings show that benefits cliffs and asset limits impact large percentages of the low-wage workforce and that workers often experience multiple, overlapping effects from benefits cliffs and asset limits. Ultimately, benefits cliffs and asset limits are policy choices—choices that create substantial barriers to work and economic mobility for households. Policymakers interested in removing barriers to work should consider implementing strategies that can ease the impact of benefits cliffs on workers.

Read the full study.