If you work in a nonprofit serving the poor, you need to know that the government benefits your clients receive are likely discouraging them from working or forming a family, two things that research shows could lift them out of poverty the fastest.
This is an especially tough problem for nonprofits, like GCO, that work to get their clients into good-paying jobs and strengthen their family relationships.
What’s going on?
These disincentives to work are often called “welfare cliffs” and the disincentives to family formation are called “marriage penalties.” Essentially, “cliffs” are generated any time a person receiving government benefits gets a raise at work that causes them to lose more in benefits than they will earn in additional income from the raise. These same individuals can face a similar financial penalty IF they decide to marry. In many cases, they will lose more in benefits than their spouse is able to provide in new income to the household.
While you would think (hope?) cliffs and penalties are rare, they are not. Instead, they are baked into the structure of nearly all welfare programs and many of the cliffs are severe. It’s also important to know that welfare recipients don’t face a single cliff or a single penalty, but they face cliffs and penalties at a number of different points as they have additional income from working or through marriage.
Why does it matter?
For nonprofit leaders, the cliffs and penalties may mean that our clients are locked into poverty for much longer than they would be otherwise and despite our best efforts. For workforce development nonprofits, cliffs could be the underlying reason why your clients don’t pick up additional work hours when they are offered or seem less than excited when they are offered a good promotion. In extreme cases, clients may quit jobs that seemed like a perfect fit simply because they panic when they learn they may lose a major benefit – like housing or childcare.
For nonprofits trying to help strengthen family relationships, marriage penalties may be driving behavior that is otherwise inexplicable, like seemingly happy couples refusing to marry or live in the same home. These dynamics can lead to stress for the couples affected and to a sense that a parent (usually the father) has abandoned the family when, if the system would allow it, he would be in the home. In these cases, children pay the biggest price.
What can you do about it?
Fortunately, we have created a platform that allows anyone to see when a particular family can expect to experience benefit cliffs as they earn more money through work. For nonprofits working with these families, you now have a tool (available for 10 states, with two more on the way) that will allow you to help your clients plan for the future. In some cases, knowing when cliffs are likely to happen will allow your clients to seek a larger raise that will help them bypass or leapfrog a cliff. In other cases, maybe the answer is seeking additional training or certifications that will get your client into a different payscale entirely – one that avoids the cliffs.
In the coming weeks, we will be adding a tool that will allow users to see the impact of penalties on couples who decide to marry. We will also be incorporating a solutions tool that will allow anyone to see how reforming our government benefit programs can actually eliminate cliffs and penalties entirely, giving recipients every reason to pursue work and form stable households.
For GCO, it is this last point – reforming the system – that remains the ultimate goal. In the meantime, we are looking for ways to mitigate the harm caused by the welfare system, so that as many people as possible can escape the system and break cycles of poverty now.