When does public assistance become an obstacle to personal achievement? Joshua Bandoch, senior vice president of policy research at the Foundation for Research on Equal Opportunity, joins the Overton Window Podcast to discuss his recent white paper on the “benefit cliff” — the point at which an increase in earnings leads to a reduction in benefits eligibility that may actually leave the person poorer. In some cases, a raise as small as $1 per hour can cost a worker hundreds or thousands of dollars in household resources, creating a perverse incentive for poor people to reject professional and financial opportunities.

State governments, according to Bandoch, have begun to recognize the challenge posed by the benefit cliff, but he warns that some ideas under consideration could move the Overton Window in a direction that makes the problem worse. 

“There are four approaches that states are adopting,” says Bandoch. “The first is to address benefit cliffs with financial planning: If people can see as they take a raise, promotion, or new job what those opportunities are gonna mean to their overall financial picture, that’s helpful for them to know. And at a deeper level, we know that financial literacy is crucial to exiting poverty. A couple of states — Utah, Ohio, and others — have put this at the center of their approach for addressing benefit cliffs.

“The second approach, and this kind of goes on a spectrum, is to expand benefits. Now kind of early on in this approach, it’s fine. We’re basically talking about increasing asset limits, because some programs have really, really low asset limits that make it impossible for poor people to build wealth. Sometimes that’s as low as $2,000. So I think those asset limits should be a little bit higher, probably closer to $10,000.

“What starts to happen though, and we can talk about what some states have done, is they try to smooth the cliff by essentially filling in the holes. Missouri has done this. So three years ago they passed legislation that would have, by using Temporary Assistance for Needy Families funding, smoothed out some of the cliffs. One of the the good things about TANF is that it’s really flexible, and states can do almost whatever they want within the contours of the program. Missouri tried to smooth the cliffs out using TANF money. The problem is that three plus years later, they haven’t been able to implement that. It’s too expensive. So they have not been able to do it in a way that they can afford,” Bandoch says.

“The third approach is kind of like expanded benefits on steroids, and it’s called universal basic income,” says Bandoch. “Now, UBI has been part of the conversation for other reasons, but it’s also one way to expand or to address benefit cliffs. With universal basic income programs, recipients just get, say, $1,000, could be more, $2,000, $5,000 a month. Usually it’s been $500 or $1,000 in the pilot programs, and they just get that money. So yes, one way to address these cliffs is just to get people more money. And I think those programs have been shown to be extremely harmful for participants.

“There was a great paper by Kevin Corinth that came out of the American Enterprise Institute looking at UBI or guaranteed income pilots. Those programs found clear negative economic impact on recipients of the money. The best one was done by Open Research, which did pilot programs in Chicago and Illinois. They continue to revise the paper because as they have more years of data, the outcomes are actually worse for the people who participate in the program. People who received money from the pilot decreased their labor force participation by more than four percentage points. That’s a big decrease. If they had a five percent unemployment rate, if they’re participating in the program, they’d have a nine percent unemployment rate. They’re just leaving the workforce.”

The problem, Bandoch notes, is that so many initiatives, in one way or another, incentivize people not to work.

“OK, so what do we do? I think that the best approach is what I call jump the cliff,” says Bandoch. “The only pathway we know to climb the economic ladder is work. So our approach to benefit cliffs is gonna be evidence-based, it’s gonna be rigorous, and we’re gonna focus on getting people in work-based programs that we know are gonna help them get and keep a job and to grow professionally. Because the state really can’t just simply eliminate cliffs that are in federal programs. The state that’s done the best, I think, in really thinking about the big picture of how we address benefit cliffs is Tennessee.”

Bandoch says this approach has shown promising results on a smaller basis, and it is not as impossible as it sounds.

“I call this ‘jump the cliff’ because if somebody can earn an extra $10,000 or $20,000 or $30,000, they can essentially jump up the income scale enough that the cliff becomes irrelevant,” says Bandoch. “Now I know that your listeners are thinking this is just fanciful: that low-income people can just earn $10,000 or $30,000 more per year. The really good news is that it’s not. Why? Because the average salary for somebody who completes an apprenticeship is $86,000. Apprenticeships are a fantastic pathway to opportunity.”

Listen to the full conversation on The Overton Window Podcast.

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