Understanding Benefits Cliffs

What to know about these overlooked poverty traps

Millions of Americans rely on government-run safety net programs to help meet their fundamental needs. Also known as “welfare programs” or “public assistance,” safety net programs include the Temporary Assistance for Needy Families program, the Supplemental Nutrition Assistance Program (SNAP or food stamps), Medicaid, housing assistance, and childcare support, among many others. 

These programs are meant to temporarily support individuals and families going through tough times as they rise above the poverty level and become self-sufficient again. 

But these safety nets often function more like snare nets, trapping people in a complex web of formulas and rules that prevents them from taking and keeping promising jobs that would lead to a better future.

Frankie, a young woman who moved to Georgia for a new start, found herself in this very situation. She felt forced to turn down a great job that would have paid $70,000 per year. She needed the job, but she also needed the public assistance that would help her find an affordable home for her family. The new income would have made her ineligible for that crucial housing support. 

How is it possible that well-intentioned government assistance programs are actually reinforcing cycles of poverty? People like Frankie who receive safety net support are facing harmful barriers to opportunity called “benefits cliffs.” This critical flaw in welfare programs discourages work and upward mobility and keeps people stuck in long-term cycles of government dependency.

Frankie, a young woman who moved to Georgia for a new start, found herself forced to turn down a great job. She needed the job, but she also needed the public assistance that would help her find an affordable home for her family. The new income would have made her ineligible for that crucial housing support. 

How is it possible that well-intentioned government assistance programs are actually reinforcing cycles of poverty?

What are benefits cliffs?

Many low-income workers experience benefits cliffs, sometimes called “welfare cliffs.” In these disheartening situations, a small increase in earnings leads to a sudden and sharp decrease in, or even a total loss of, public assistance. 

The higher wages push a worker’s income over the eligibility limit for one or more safety net programs, causing the abrupt loss of essential benefits. This leaves people worse off financially, despite doing everything right to get ahead. 

Who do benefits cliffs affect?

Benefits cliffs, and their severity, depend on many factors. The number of people in a family, how much each person earns, and where they live can all play a role. Low-income working parents with young children are especially vulnerable to benefits cliffs because they frequently rely on multiple safety net programs to protect their family’s well-being.

A detailed data model developed by the Georgia Center for Opportunity provides many scenarios showing how benefits cliffs can affect a family’s net earnings.

Let’s consider the situation of a working mother with two young children in Georgia who’s receiving benefits from five welfare programs:

• If she earns $12.50 per hour from her full-time job, her combined income from wages and public assistance will total about $45,000 annually. 
• If she earns just 25¢ more per hour, she’ll face a net loss in income of almost $1,500 per year because of reduced safety net benefits.
• If she gets a slightly bigger raise of $1.25 per hour, she’ll lose so much in welfare benefits that her net income will decrease by a staggering $15,000 per year. That loss will pose a huge risk to her family’s health and financial stability.

What are the impacts of benefits cliffs?

Many public assistance recipients find themselves in deeply worrying circumstances after they take a better-paying job or accept a raise. Their income has increased too much to qualify for benefits, but it’s still not high enough to cover all their family’s essential needs like food, healthcare, housing, and childcare. In this demoralizing situation, people often feel like they’re being punished for trying to break free from government dependency.

Effects on career development

When individuals don’t accept fulfilling career opportunities, they lose the vital sense of dignity, purpose, and well-being that meaningful work and upward mobility provide. 

“It makes you feel hopeless,” said Carlotta Maria Jackson. Carlotta was offered a rewarding job at a broadcast network in Georgia, but she instead took a lower-paying job that wouldn’t put her much needed medical benefits at risk.

Implications for mental health

Benefits cliffs can impact mental health in many ways as well. For example, Joyelle, a working mom, struggled to afford housing after her income increased above the eligibility limit for public assistance. Rather than being excited about her advancing career, Joyelle felt scared. Her fears of not being able to take care of her family were “devastating” for her well-being, and she suffered from severe anxiety, stress, and depression.

Consequences for employers and communities

The negative impacts of benefits cliffs also spread to employers and local communities. When people are disengaged from work, businesses find themselves constantly hiring rather than building a strong, stable, and efficient workforce that can help the surrounding community grow and thrive.

How can policymakers address benefits cliffs?

Safety net programs help people survive on a basic level, but they don’t currently empower welfare recipients to rise above the poverty line so they can flourish and reach their true potential. 

As Frankie asked of the safety net system, “Do you want me to really be better, or do you want me to really be poor?”

To solve this critical issue and reward progress rather than penalizing it, policymakers should eliminate benefits cliffs by gradually decreasing public assistance as workers earn more. This will encourage individuals to take meaningful jobs, accept promotions, or work more hours without fear of a benefits cliff. In addition, gradual benefit reductions will give families time to make financial plans as they move toward self-sufficiency.

Removing barriers to work also allows people to experience the powerful sense of dignity, purpose, and confidence that comes from a rewarding job and financial independence. And when people take jobs that confirm their inherent value and potential, it transforms not only their lives, but the lives of their family members as well. 

As workforce participation increases, businesses can also hire and promote more workers. This will stabilize their staff and reduce inefficiencies that high turnover rates can cause. A thriving local economy will then lift and strengthen the entire community.

Research has shown that work is one of the key factors in breaking the cycle of poverty. It’s a gateway to a better future where people and communities can flourish. To open these doors, policymakers need to make changes, ensuring that benefits cliffs are no longer barriers on the pathway to opportunity.

Additional resources

Benefit Cliff Resource Hub
American Public Human Services Association

Op-Ed: Hidden Costs of Getting a Raise for America’s Working Poor
The Black Chronicle

The Benefits Cliff, Explained
Fed Communities

Federal Reserve Bank of Atlanta CLIFF Tools
Federal Reserve Bank of Atlanta

What Are Benefits Cliffs?
Federal Reserve Bank of Atlanta

The Benefits Cliff: When a Higher Minimum Wage Results in Lost Benefits
Forbes

Fixing the Broken Incentives in the U.S. Welfare System
Foundation for Research on Equal Opportunity

The Benefits Cliff
Georgia Center for Opportunity

Confirmed. Welfare Cliffs Pervasive in 8 Southeast States
Georgia Center for Opportunity

Disincentives for Work and Marriage in Georgia’s Welfare System
Georgia Center for Opportunity

If You Accept This Raise, You Fall Off the Welfare Cliff
Georgia Center for Opportunity

Impact of Nonwork
Georgia Center for Opportunity

Solving the Food Assistance (SNAP) Benefits Cliff
Georgia Center for Opportunity

Welfare Cliffs Exist—Concludes Team of Economists
Georgia Center for Opportunity

Introduction to Benefits Cliffs and Public Assistance Programs
National Conference of State Legislatures

Moving On Up: Helping Families Climb the Economic Ladder by Addressing Benefits Cliffs
National Conference of State Legislatures

Strengthening the American Dream: Addressing Benefits Cliffs to Empower Safety Net Participants to Pursue Work and Opportunity
Sutherland Institute