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An Innovative Approach to the Benefits Cliffs Quandary

February 22, 2022

Many direct care workers, like other low-wage workers, face a conundrum. They have a strong desire to earn more and improve their financial stability but accepting higher wages and additional hours could end up costing them valuable public benefits, like Medicaid and food and nutrition assistance. In these scenarios, direct care workers need to make impossible choices between the raises they deserve and access to healthcare or food on the table.

The Federal Reserve Bank of Atlanta, which is part of the central bank of the United States, is tackling this issue—known as “benefits cliffs” and “benefits plateaus”—as part of its effort to help workers achieve economic mobility and resilience. After conducting extensive research on this topic, the Atlanta Fed (as it is popularly known) launched a set of user-friendly tools called the Career Ladder Identifier and Financial Forecaster (CLIFF) in 2021.

I spoke with Dr. Alex Ruder, Principal Community Economic Development Adviser at the Atlanta Fed, to learn more about how these tools work—and how they can be used to inform policies and programs that promote better economic outcomes for direct care workers.

Stephen McCall: Let’s start with the basics. What are benefits cliffs and plateaus?

Alex Ruder: When families on public assistance earn more money, they might cross the eligibility thresholds that qualify them for that necessary assistance, causing an enormous loss of total financial resources. Benefits cliffs in subsidized childcare programs are an especially egregious example. A small increase in wages (even just a couple of dollars per hour) could result in an annual $10,000 loss in childcare subsidies. Benefits plateaus occur when families increase their earnings just enough to make up for lost benefits—they’re not necessarily worse off, but they’re no better off. They’re treading water.

SM: Who is most impacted by this problem of benefits cliffs and plateaus?

AR: Benefits cliffs and plateaus disproportionately impact lower-wealth households because of income and asset eligibility requirements in public benefit programs. A substantial body of research demonstrates that systemic and historical factors—such as redlining in the banking industry—have created a significant wealth disparity across race and ethnicity in the United States. Because of those wealth gaps separating white people and people of color, benefits cliffs and plateaus disproportionately impact people of color.

SM: Why are benefits cliffs and plateaus a workforce development issue?

AR: Workforce development programs primarily aim to move individuals from unemployment or low-wage work into entry-level positions with potential for career advancement and higher earnings. We often measure the success of these programs using employment and earnings. However, when we look at a family’s more complete financial picture, including their access to public benefits, it is clear that employment and earnings alone do not necessarily result in economic stability. In order to make sure these programs produce desirable outcomes for workers, we should account for benefits cliffs and plateaus.

SM: Tell us about the CLIFF tools.

AR: First, we have created the Career Ladder Identifier and Financial Forecaster Dashboard to enable employers, policymakers, and others model how various career paths are associated with benefits cliffs and plateaus. We also offer the CLIFF Planner, which employers, career coaches, and financial counselors can use to help individual workers understand in detail how their job training and career advancement opportunities could impact their eligibility for public benefits. Finally, to help policymakers and others forecast the impact of guaranteed income proposals, we have launched a new tool called the CLIFF Guaranteed Income (GI) Dashboard—but that may be a topic for future conversation.

SM: Can you give an example of the CLIFF tools in action?

AR: Absolutely. We’re working with the Oklahoma Department of Commerce to address benefits cliffs and plateaus through policy change and workforce development programs in the state. First, the Department plans to pilot these tools at job centers around the state by examining which in-demand occupations move families closer to a living wage—meaning the wages that families need to afford basic expenses without public assistance. Second, the state is looking at how safety net program policies are aligned to support workers as they transition into those in-demand jobs.

SM: How could the CLIFF tools inform policy reform?

AR: Our tools are well-suited to analyze a variety of policy solutions that support workers’ economic self-sufficiency. The first way the CLIFF tools can influence policy is by raising awareness about how public benefits pose barriers to economic stability. (See Figure 1.) The tools can also help model how proposed solutions would impact both workers and taxpayers. We are currently working with several partners to analyze solutions such as tax credit expansions, changes to eligibility rules, and other mitigation strategies.

This hypothetical example from the CLIFF Dashboard shows the financial trajectory for a new nursing assistant in the Bronx, NY who is married with two young children. The bold line depicts the nursing assistant’s annual net income, including earnings and the value of public benefits minus basic expenses (like housing, food, transportation, and other expenses). This figure shows that the nursing assistant experiences several benefit cliffs and plateaus over time. For example, in the first year on the job (2022), the nursing assistant would lose access to health insurance marketplace subsidies, causing their net income to drop by nearly $3,000.

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SM: How do you think long-term care employers and direct care workers could use the CLIFF tools?

AR: I think the first step is to use the CLIFF dashboard to get a tailored, geographic-specific understanding of the potential benefits cliffs and plateaus that direct care workers face based on the factors the affect their public benefits eligibility, such as family size and household income. With that knowledge, employers could develop tailored supports to mitigate the effects of benefits cliffs and plateaus, for example by innovating new employer-sponsored benefits, providing financial counseling, or establishing partnerships with community-based organizations. Equally important to these employer-based strategies are policy interventions to eliminate systemic barriers to increased earnings and career advancement.

SM: Do you have any final piece of advice for our readers?

AR: The first necessary step toward addressing benefits cliffs and plateaus is building awareness. Leaders should know how cliffs and plateaus affect in-demand careers (like direct care jobs) in order to build a plan to address those challenges through a mix of policy and practice interventions. We are committed at the Atlanta Fed to working with partners to help them analyze those proposed solutions. Those who are interested in launching our tools in their area should contact their regional Federal Reserve Bankr the Atlanta Fed’s Advancing Careers team (at cliff@atl.frb.org).

Contributing Authors
Alex Ruder
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