Economics is often misconstrued as solely a business analysis discipline. This couldn’t be further from the truth. Economics is a social science, grounded in analyzing “how we decide” to use our resources — time, money, material, physical and emotional. Our goal is to maximize these resources, getting as much out of them as we possibly can. Therefore, it isn’t limited to business applications, but also applies to each of us striving to make the best decisions we can for ourselves. We are all economists, making decisions every day that maximize our resources.
So how does economics impact families on public assistance and the general public’s opinion about public assistance? For families on public assistance, this includes navigating program options based on eligibility requirements that are often at odds with sound decision-making that leads to financial self-sufficiency.
Public opinion is often uninformed about how difficult this process can be, not realizing that families on public assistance are making sound economic decisions based on what is available to them. Many choose to stay on public assistance despite other opportunities that appear to the general public as leading to financial self-sufficiency. This is why it’s called the “Benefits Cliff.” It’s time to shed light on this, looking at changing public policy and working with employers to alleviate this cliff that creates a poverty trap.
Single parents are the common scenario for families on public assistance. Let’s look at this scenario with two non-school age children in Washington County. The family’s total public assistance, equated to a full-time salary, would be roughly $16 an hour if they are not working. As they begin to work, the public assistance benefit hourly rate slowing declines at a rate less than their new hourly wage earnings, supporting the decision to work with total resources — assistances and wages — going up.
The “Benefits Cliff” for this scenario occurs between wage increases of $18.50 and $22.50 an hour. Prior to earning $18.50 an hour, public assistance benefits continue to be reduced at a rate less than the wage increases, enabling the family’s total resources to increase and shifting toward financial self-sufficiency. But between that range public assistance benefits decrease dramatically, at the rate of $9 an hour, creating a net effect of losing $5 an hour in total resources. Think about what economic decision you would make at that point. What’s the better choice, losing $5 an hour or staying where you are at? It’s clear that losing $5 an hour is not doable for families in this situation. So, how do we address the “Benefits Cliff?”
There are efforts to look at the public policy piece. Considerations include program waivers or designing approaches that allow families to customize their plans so that they don’t lose the benefits they really need, while able to forego others that currently stay in place. Several counties and cities in Minnesota are exploring options, some participating in national efforts.
Employers may also play a role. If they understand the benefit cliffs for their employees, they could look at modifying pay and benefit increases that wouldn’t negatively impact the total resources of the employee’s family. This would require education and awareness partnerships between counties and employers, but is worth looking into.
To truly end the Benefits Cliff that creates the poverty trap, we need to look at redesigning approaches to public assistance and employment practices. Together we can create the financial self-sufficiency we seek for all our residents, creating a just society and liberty for all.
Rick Roy manages the Washington County Workforce Development Division, which is part of Minnesota’s workforce development system, called CareerForce. Visit CareerForceMN.com for more information about recruiting, developing and retaining employees, plus creating an inclusive workplace. You are also invited to connect with CareerForce in Woodbury for more information or email email@example.com.