When a $200 Raise Can Ruin Your Life

Every summer, Shonique Hill, 32, would look forward to working her second job as a field supervisor for New York City’s Summer Youth program. She enjoyed working with young people, and appreciated the extra income it provided for her and her 6-year-old son. But, living as a single mother on a limited income wasn’t easy. To survive in one of the most expensive cities in the world, Hill still depended on SNAP and Medicaid. Yet, when it came to recertify for her Medicaid, she found that her monthly payments jumped from $20 a month to more than $200. The income for her second job caused her premiums to skyrocket and was way more than she could afford. Worse yet, Hill found herself out of work and put through a bureaucratic ordeal. “Literally two weeks or so after that, I didn’t get accepted for the summer program,” she says. “So I had to contact New York State Health and was instructed that once I received unemployment benefits that they would change my monthly fee based on what I was receiving from unemployment.”

For many working-class New Yorkers, the new year brought with it a much-needed pay raise. Since 2016, New York—as with other states thanks to the $15 Now movement—has been gradually increasing its minimum wage. By the end of the year, wages will be raised to $15 an hour. But the increase in wages comes with a conundrum for many, especially single working mothers of color, who will find themselves forced to choose between vital public benefits and a living wage. Known as the “benefits cliff,” the little-discussed phenomenon occurs when a family’s income increases to the point where they no longer qualify for public benefits. Many states, such as Alabama enforce strict income requirements and limits that force families to choose between the needs of their children and an increased income. Critical social services such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), child-care assistance, health-care coverage, subsidized housing, and the Earned Income Tax Credit, can vanish because of earnings of as little as a few hundred dollars over the qualifying threshold.

Of all workers, single mothers are disproportionately being pushed off the benefits cliff. A 2016 study conducted by Rutgers University about the impact of the benefits cliff in New Jersey found that for a low-income single mother of two, there was a sudden drop off in benefits as their hourly income reached $22.11 an hour. According to data by the Women’s Center for Education and Career Advancement, a single mother of two children in Brooklyn would have to earn more than $60,000 annually to be considered self-sufficient. Yet, for a family of three in New York to qualify for SNAP, she would have to earn $27,732 a year.

“We do not want to increase wages while simultaneously devastating other benefits—this is counterproductive,” said New York State Assemblymember (D-North Brooklyn) Joseph R. Lentol. “What we should be doing is helping individuals and families stabilize themselves so they can provide for themselves comfortably and securely. Although we do not have a study that working and single moms are most affected, the stories indicate that this is highly likely.”

The prospect of losing SNAP and childcare forces women to choose between working longer hours and not working at all—which isn’t a choice at all. “Women are overwhelmingly the primary caretakers of children. Women can lose their childcare subsidy,” says Karen Schoellkopf, co-founder of Leap Fund, an innovative organization piloting a first of its kind program allowing users to defer their income until they earn enough to replace what they’ll lose in benefits. “It can be worth $900 a month here in New York City and that’s a pretty big expense. Childcare overall is a huge expense. Single mothers, and women in general, usually bear the brunt of that.”

A pay raise is usually equated to a better quality of life, so the idea that people could be worse off after receiving a wage increase is hard to imagine. But a study conducted by the Women’s Fund of the Greater Cincinnati Foundation found that as the annual earned income increases, the total gross resources for a single mother of one remains relatively flat due to less access to social assistance programs. What this means is that as a mother earns more at work, the more she has to spend in order to supplement the public resources (e.g., SNAP, childcare) she has lost as a result of her income increase. In the end, her raise costs her money. The study claims that a mother in the Cincinnati area would have to earn more than $40,000 a year to see any significant impact on their gross resources. Recently in New York, a mother of two lost her rent subsidy after her monthly earnings increased to $211 over the federal income limit.

“For any working mother with children experiencing that benefits cliff, it could be very traumatic for the family,” says Allison Cook, New York policy manager at PHI, an organization that promotes policy and advocates for the home-care workforce. “Assuming you will be earning more overall and then not having it at the end of the month could lead to a wide variety of negative implications such as food insecurity, housing insecurity, lack of health insurance coverage or whatever it might be. There is plenty of evidence out there about how all kinds of insecurities negatively impact children as well as parents.”

Critics of the benefits cliff, such as Leap Fund’s Schoellkopf, are careful to point out that the minimum wage in and of itself is not an issue. “The minimum-wage hike is a good thing in that we definitely support workers making more money and trying to keep pace with the drastic increase of cost of living,” she explains. “But there wasn’t a lot done in terms of looking at a benefits cliff when we did raise the minimum wage.”

Cook agrees, saying, “In New York the public justification for raising the minimum wage was to ensure people earn enough to make ends meet. The benefits cliff is not an argument against increasing the minimum wage; it’s an argument of how we structure our benefits system to ensure we provide support for people as well as allow for upward mobility.”

When New York partly raised its minimum wage for fast-food workers in 2016, one of the justifications was that it would lessen people’s reliance on public assistance. Governor Andrew Coumo stated that “New York State ranks first in public assistance spending per fast-food worker, $6,800 a year. That’s a $700 million annual cost to taxpayers.” He went on to argue for a minimum-wage increase as a way to “ease the burden on taxpayers.” Others such as the Liberal Economic Policy Institute released a report arguing that increasing the national minimum wage to $12 by 2020 would reduce public-assistance spending by $17 billion. However, Schoellkopf believes those arguments make little sense. “That logically doesn’t hold. People lose their benefits and they are worse off than when they started. It increases a cycle of people being on and off benefits. It doesn’t actually save money—it costs more.”

There is little hard data showing the numbers of people who actually turn down higher wages as a way to preserve their benefits, so perhaps this is partly why policymakers have not considered the perils of the benefits cliff. “We do a lot to track raises, promotions, and more hours at work,” says Schoellkopf. “But we don’t track who turns down raises, turns down hours, and ultimately turns down work altogether. On top of that we don’t track why they are making those decisions.”

To address the issue, several states are taking measures: to deal with Kentucky, Texas, and Nebraska have either passed or proposed laws to mitigate the cliff effect. The Kentucky bill, introduced in January by a bipartisan group of lawmakers, aims to “lower barriers for people attempting to get back into the workforce,” by creating a “bridge insurance” that would cover health care and childcare costs as workers transition off public benefits. “All too often, people are asked to make decisions about employment based on what is best for their family,” said Kentucky House Speaker David Osborne. “It’s unfortunate that they have to consider the effects of public assistance in that particular case.” In New York City Comptroller Scott Stringer has proposed a plan to provide child care assistance to working families with incomes up to 400 percent of the poverty line ($17,240 for a single-parent household with one child; $26,200 for a family of four). Childcare service for a single child in New York could consume more than two-thirds of the income of a single parent with a minimum-wage job. This could leave them with less than $850 each month to barely cover the cost of rent and food. Stringer’s plan would essentially guarantee every parent in New York the ability to access childcare. A family’s contribution toward the cost of childcare would be on a sliding scale. Fees could range from zero percent for a low-income family to only 8 percent for families up to 200 percent of the poverty line, maxing out to 12 percent for families at 400 percent of the poverty line.

Recently, however, a bill introduced by New York State Assemblyman Lentol to study the state’s growing benefits cliff was vetoed by Cuomo. “This is where individuals and families are losing their qualification for safety-net benefits, such as food stamps because their higher salary due to minimum wage gives them too high of a salary,” Lentol says. “The added income is beneficial, but it is not enough to sustain individuals and families while also paying for everything else. The purpose of the study is to see what we can do to help mitigate the benefits cliff.”

Ultimately, policymakers like Allison Cook believe that to address the problem a national conversation is necessary. “I think we need to have a conversation about how benefits are structured. We have seen some states where additional requirements were put around SNAP benefits did not lead to more people working. One of the differences around the increasing of the minimum wage is that people can’t choose to earn a lower wage. They can only choose to work fewer hours. It was not the benefits that were keeping people from working.”

As for Shonique Hill, she has since found a new job with the Community Navigator Program at the Silberman School of Social Work at Hunter College. The job allows her to help others like herself avoid many of the pitfalls of the daunting process of applying for public benefits. When she was applying for public assistance, there was no one to explain what the benefits cliff was. Her hope is that her job as a Community Navigator will provide comfort to her clients because she has been through the system too.