Illinois Policy Institute: “Welfare Cliff”

For a family living in poverty, a parent’s pay hike is more than just a golden egg.
It’s hope. It’s success. It’s cause for celebration with arms stretched upward, tracing the trajectory of a future filled with better opportunities.
But thanks to poorly planned policy, many Illinois families must brace themselves for a shuddering impact: a warped welfare system can make raises hurt.
Welfare benefits are structured with intent to address the myriad struggles associated with poverty, and even more, to serve as a foundation for upward economic mobility. But a phenomenon known as the “welfare cliff” is creating a poverty trap, making pay raises detrimental because they are outweighed by an even greater, simultaneous decline in welfare benefits.
New research from the Illinois Policy Institute details the welfare cliff experienced by single-parent, two-children households and two-parent, two-children households in Cook, Lake and St. Clair counties, as well as the city of Chicago.
The research model assumed that families have been aided by refundable tax credits, such as the state and federal Earned Income Tax Credit; cash grants through the Temporary Assistance for Needy Families program; and assistance for food, housing, health care and child care.
Under these assumptions, a working single parent in Chicago would be foolish to take a pay raise to $18 an hour from $12 an hour. They’d fall from the top of the welfare cliff and see a drastic net reduction in benefits, leaving them with as much as one-third less in household resources. This loss would only be made up again by finding a job paying $38 an hour.

Similarly drastic effects were observed in downstate St. Clair County, as well as northern Lake County, for both single- and two-parent households.
Per the study: “This result reveals a tremendous disincentive to seek work that pays more, essentially trapping single parents between the minimum wage and $12 per hour. It is unlikely that persons in this situation would be able to triple their incomes in order to recover lost benefits from the cliff.”
Creating this cavernous earnings gap for poor families to leap across in order to make up for lost welfare benefits is nothing short of cruel.
The welfare cliff detailed in the study is created by a combination of programs that taper off too quickly or are too generous to begin with. Specifically, housing benefits, child-care assistance and health-care assistance programs taper off steeply. It is with the narrow-minded designers of these anti-poverty initiatives where one should lay blame for the associated poverty trap.
While the state of Illinois currently has little authority to reform these programs, state and local officials must fight for Illinois families by lobbying the federal government for more discretion in welfare spending. This is the first step in addressing the inexcusable inequalities built in to the welfare system as it stands.