Want to solve the benefits cliff problem? Pay workers more

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Last Wednesday, Peter Coy of the New York Times released an opinion piece in which he argues that so-called “benefits cliffs” in the US discourage low-income workers from taking higher-paid work.

To explain the “benefits cliff,” he gives an example of a fictitious 25-year-old single mother, Lei, with two children. Lei has a full-time job, but because it pays her less than she and her children need to survive, she also receives welfare in the form of food stamps, Medicaid, housing subsidies, and other tax credits. She is currently facing a dilemma in deciding whether to take a higher-paying job: if she makes more money, she will lose her government benefits and end up worse off financially. In the end, Coy argues that this ordeal discourages low-income people like Lei from working more and/or for higher pay.

Coy certainly highlights a significant flaw in our benefits system that needs fixing. But, more importantly, he misses Lei’s primary problem: the fact that she is working full time but still needs welfare to survive.

We live in the richest country in the history of the world. It is nothing short of an abomination that millions of Americans like Lei can work forty hours a week in the US and still need welfare to afford basic necessities. Anyone who works full time in any capacity in this country should be able to live a life of dignity without government assistance.

Companies should pay their workers more. Businesses across virtually every industry are doing better than they ever have, so they can absolutely afford to pay their workers more than the starvation wages that they pay them now. If and when this happens, workers won’t need to rely on welfare to meet their basic needs and consequently won’t face benefits cliffs at all.

But until that day comes, and it might be a long way off, policymakers would do well to find more direct ways to fix the benefits cliff. Coy discusses two such solutions. One is to provide “moral support” to low-income workers to encourage them to keep on the path to getting off government assistance; the other is to provide financial assistance to workers to “plug the gap” in the transition to higher paying work.

Unfortunately, Coy misses the mark here as well. The solutions that he highlights suggest that he believes that the main reason low-wage workers don’t earn more boils down to a lack of motivation. This is wrong and insulting to millions of hardworking Americans. People all over the country are motivated to improve themselves and their financial situations. But most of them simply cannot afford the short-term losses that come with falling off a benefits cliff even if they will lead to bigger payoffs in the future. To directly fix the benefits cliff we should make sure that this doesn’t happen by phasing benefits out slowly enough that workers will always be better-off by taking a higher-paid job.

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