The Bottom LineThe Bottom Line

A New Tool is Raising Awareness for the Benefits Cliff

Employers are often unaware that a promotion for a worker might not mean more money in their pockets. Can a new benefits calculator be a step toward a solution?

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At surface level, a boss offering their employee a raise is something to celebrate: a higher paycheck as a reward for their performance. So is taking part in a training program that gives them the ability to “skill up” for higher-paying work. But the reality for many workers is much more complex.

Take Leia, a fictional single mother with two kids working at a movie theater concession stand in Alabama. In a presentation by the Federal Reserve Bank of Atlanta, Leia receives assistance from several programs: food assistance, Medicaid that covers medical costs for her children, and the Child Tax Credit, which until recently was distributing expanded funds because of the pandemic.

Leia could go through training programs to become a nursing assistant — a certification that would pay more than her current job, and one that she could continue to build upon to access even higher-paying jobs. But as soon as she completes her training, lands a job, and starts earning more as a nursing assistant, she loses benefits. The extra money she would earn is canceled out by having to pay more for essentials like healthcare, child care and food. She has fallen off the benefits cliff.

The “benefits cliff” refers to when people who are receiving public benefits get a raise or promotion that gives them a higher salary — high enough to kick them off their benefits, but not high enough to make up the difference.

Most major federal assistance programs, which provide essential services like food, childcare, and housing are only available to people whose income is below certain thresholds. But those thresholds aren’t the same across all benefits, and that’s only looking at federal programs.

The broader benefits system is a complex web of federal, state, county and city policies. Even for the people receiving benefits and for those advising them, it can be difficult to know when, exactly, a person earning an extra dollar or two an hour could lead to losing the grounding of a major benefit leading them to fall off the “cliff.”

Now, there’s a way for people to explore where the precipice exists: a “Benefits Cliff” calculator, developed by Buffalo Niagara Partnership, the area’s regional chamber of commerce, and the Federal Reserve Bank of Atlanta.

The first step for the calculator is to raise awareness among employers that the cliff even exists, said Dottie Gallagher, President & CEO of the Buffalo Niagara Partnership. There have been federal reserve studies on the topic, but Gallagher and her team were interested in a dynamic, customizable tool that would bring employers into the dialogue.

“The lack of awareness [among employers] that this actually exists is incredible,” Gallagher said. “It masks itself into people saying things like, ‘this person loves their job so much they don’t want a promotion,’ or whatever assumptions are made on the employer’s side. We know that’s not the case — [workers] are managing for their own families.”

The tool allows workers to input where they live, their family type, assistance programs they’re currently on, and the type of job they hope to have. The calculator provides a line graph of earnings if they stay at their current job and what will happen if they follow through with training for their aspirational job. It captures the cliff, but often shows long-term financial growth as well. The calculator was based on a financial planning tool for high-wealth families and adapted to help people choose careers that will increase their earning potential beyond the cliff.

There is also an employer-side tool in development, Gallagher said, which would give managers the ability to fill gaps or offer a raise high enough to compensate for the cliff.

“We’re not saying to reduce benefits,” she said. “We’re saying to give people enough financial stability to be able to realize their full talents. We need their talents in the workforce. We need their innovation in the workforce.”

Not all benefits drop off like a cliff: some ease off more like a slope as people earn more money. While it might be tempting to solve the problem of the cliff by creating more slopes, there’s a risk in that as well. In the benefits landscape, there’s another feature that can hold people back: the plateau, which happens when people are gradually losing multiple programs at the same time. If a person is on many programs, gradually losing all of them erodes earnings.

The plateau is “arguably more pernicious,” said Alexander Ruder, Principal Advisor for the Atlanta Fed’s Community and Economic Development team.

“If you’re just looking at one program, a gradual roll-off sounds great,” he said. “Something I hear often from families is that they feel stagnation. Their earnings are going up, and they’re not getting any more well off.”

Ruder’s work is focused on how people can move up the metaphorical economic ladder.

“For many years, I unquestioningly thought that career ladders and job training are a win/win for workers,” he said.

But as soon as he was exposed to the idea of the benefits cliff and started thinking about workforce development within that context, it became clear that job training and higher-paying jobs weren’t necessarily making workers better off.

“To me, that undercut a lot of the logic I used to think about workforce development,” he said. “If you’re not overall improving workers’ wellbeing, what type of outcomes are we actually measuring? In other words, if we aren’t improving financial wellbeing, is it a surprise our programs don’t have great outcomes?”

The tool is still new, but down the line Gallagher and Ruder both hope it will be used to help develop best practices for getting people adequately compensated and avoiding the benefits cliff.

“We’re really trapping talent, is how I see it,” Gallagher said. “How can we unleash talent in our community? We want to break the cycle of generational poverty.”

This article is part of The Bottom Line, a series exploring scalable solutions for problems related to affordability, inclusive economic growth and access to capital. Click here to subscribe to our Bottom Line newsletter.

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Ashira Morris is a freelance reporter based between Sofia, Bulgaria, and Tallahassee, Florida. Her work, focused on local environments and the forces that shape them, has been published by National Geographic, Foreign Policy, and the Guardian.

Tags: atlantaalabamabenefitsworking poor

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