From Rhetoric to Reality: What it Takes for Public Benefits to Work Better for Workers

Millions of people in the United States struggle to make ends meet due to lack of work, low wages, or insufficient hours. However, a set of public programs supplement earnings to significantly improve the lives of low-income families, both poor and near-poor, through increased access to health care, nutrition, and other services that promote economic self-sufficiency.

Many programs aimed at basic needs (such as the Supplemental Nutritional Assistance Program—SNAP—and Medicaid) are means-tested, meaning that they are only available to those with low incomes. Because means-tested programs target resources to the people who need the most assistance, they are far less costly than universal programs that are available without regard to income, such as public education or Social Security. By definition, people lose eligibility for means-tested programs as their incomes rise. The specific design of a program is important because it significantly affects whether low-wage workers will transition off programs gradually as their earnings increase or experience a sharp reduction in benefits. When a small increase in earnings pushes someone just over a benefit eligibility limit, leading to an abrupt loss of benefits, they experience what is called a “cliff effect.” Benefit cliffs can leave families no better—and in some cases much worse—than before a wage increase.

Policy changes in recent decades that have expanded the availability of key benefits such as SNAP and Medicaid for working families and the creation of the Earned Income Tax Credit (EITC) have significantly reduced the extent of cliff effects. Research studies of these programs confirm that a gradual transition off of benefits as earnings increase serves to better support work and stabilize families. Though these programs are well targeted to serve those with the greatest need, some important cliff effects persist.

To learn more, read the full brief by Carrie Welton.