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Why a small pay increase can be a disaster for some working families who stand to lose benefits

Why a small pay increase can be a disaster for some working families who stand to lose benefits

FINANCIAL NEWS

Why a small pay increase can be a disaster for some working families who stand to lose benefits

GREEN BAY, Wis. – Owning a home once seemed like “an impossible dream” to Jaleesa Gray, though she dreamed about the possibility since the birth of her son a decade ago. Now that she finally has one, she sees possibility everywhere.She could paint her bedroom a calming light blue, the bathroom lavender, and the kitchen white and blue, like a country home kitchen. She can modernize the house while keeping its charms, like the old doors and crown molding. After years in rented apartments, she can watch her children create their own spaces.Jaleesa Gray, 28, poses for a portrait outside her home, Tuesday, June 15, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinUp until two years ago, Gray was moving nearly every year. Twice, she lived in House of Hope, a Green Bay shelter for women and children. She steadily worked and improved her credit score, but she had another setback when the pandemic hit and she had to quit her job at a call center to care for her children.And even as she worked to recover from that setback, she faced another problem: Because she receives food stamps and day care assistance, and because those vital benefits go away once she earns a certain amount of money, she had to weigh the pay requirements for her benefits while seeking work during the pandemic.Gray isn’t alone. For many people trying to care for their families, rent or buy housing affordably, and improve their household finances, a small increase in pay can mean a disproportionately greater decrease in benefits. This effect, called the “benefit cliff,” makes it difficult to make decisions about a new job or career advancement.In some cases, the additional earned income can cause financial stress.”If I lose day care assistance, I lose day care, therefore I lose my job and I start back at nothing. And then I could lose my home,” Gray said. “People don’t realize that that cliff and losing one assistance — especially day care — it’s huge. And a 25-cent raise isn’t going to pay for $1,700 in day care a month.”With a workforce shortage affecting some industries, employers are raising wages to attract workers. Low-income workers receiving benefits now have a better opportunity to reduce their dependence on benefits and increase wages, as long as they find wages high enough to survive the benefit cliff.►Move here, get paid: Small towns offer up to $20K just to get you to live there, work remotely►Fewer jabs mean fewer jobs: States with lower vaccination, higher COVID-19 infection rates are behind in growth this summerJaleesa Gray’s daughter plays with bubbles outside her home, Tuesday, June 15, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinRising wages present new opportunities for low-income workersWhile the minimum wage in Wisconsin has not increased, employers are offering higher wages as the economy picks up and workers are in short supply. This is due to a pandemic economy in flux, increased retirements, and more.The number of nonfarm jobs has been growing in Wisconsin since February according to the Bureau of Labor Statistics, and the increase in available jobs is another factor behind recent wage increases.Businesses like retail, restaurants, and manufacturers are locked in competition for the same workers and raising wages. Employers are reaching the suggested $15 wage floor on their own.►Investing FOMO?: Millennials are quitting jobs to become crypto day traders. Here’s the risk, reward.Wage growth was slow for lowest-wage workers for decades. For people in the bottom 10th percentile of earnings, inflation-adjusted wages only grew by 6.5% in the last 40 years (1979-2019), according to a report by the Congressional Research Service updated in December 2020. Meanwhile, wages for those at the 90th percentile saw greater gains: their inflation-adjusted wages grew by 41.3%.►Homeowners: Black homeownership’s stall during COVID-19 pandemic is the ‘epidemic after the epidemic’University of Wisconsin-Madison public affairs and economics professor Timothy Smeeding noted the rise in wages for low-income workers means it’s a good time for workers to reassess their jobs and find a better one.”For those reasons, the job market is in favor of workers right now and turnover is good,” Smeeding said. “When people voluntarily leave jobs, economists think that’s good, because that meant they found something better.”This is especially true for those receiving government assistance for necessities like food, child care, or housing. Rising wages give these workers the overdue opportunity to increase their financial independence and decrease dependence on benefits.However, pursuing higher-paying jobs or wage increases may bring financial stress in the short term because of the cliff effect, where a small increase in income can lead to a disproportionately larger loss in benefits.In those cases, higher pay may result in a temporarily reduced standard of living or financial stress in the short run.”But especially for lower-income individuals and any individual, really, who is relying on public assistance, I mean this can be a real issue,” said David Altig, director of research at the Atlanta Federal Reserve. “At a minimum, it mitigates the positive impact of rising wages. In the worst-case scenario, it actually impedes people’s progress from a pathway to higher income.”The Atlanta Federal Reserve is working on a “cliff calculator” that will allow people to predict where incoming cliffs are, depending on their household size, job type, location, and benefit programs.Altig said in the long run there’s no question rising wages are good for workers and save the taxpayer money.”It’s a win-win because the individual is better off in the long run,” Altig said. “But the public is better off in the long run too, because we are paying out less in public benefits and collecting more in income tax.”Surviving benefit cliffs sometimes means saying no to a pay raiseJenna Dahlke, human resources recruiter at STL Staffing in Green Bay, sees community members navigate the benefit cliffs by declining promotions and keeping to a specific pay range when job hunting.Jenna Dahlke talks with House of Hope residents about job opportunities and interview strategies during a meeting on June 3, 2021, in Green Bay, Wis.Sarah Kloepping/USA TODAY NETWORK-WisconsinDahlke, a former resident of the Green Bay shelter House of Hope, works with residents at area homeless shelters to find jobs that would be a good match to those residents’ needs and work experiences.►Pay equity: The race is still stacked against women of colorBut negotiating income for shelter residents is tricky.Small pay increases can lead to a greater loss in public assistance, while being far short of enough to cover living costs. As a result, it is often safer to make less and remain on assistance than it is to make marginally more and lose the assistance altogether.Dahlke estimates about a third of her homeless clients need to negotiate pay within a low range just to keep benefits.”We have a large population of individuals who are limited to only being able to make $13 to $14 an hour,” Dahlke said. “Because if they make 25 cents more an hour, they’re going to lose their health insurance, lose their housing, their everything.”Dahlke can empathize as someone who also had to navigate the cliff effect. When she got her staffing job while living at House of Hope, she received a $1,000 per year increase in pay. This might sound good, but she said she went from getting $800 per month in food stamps for her family to nothing. The budget was a little better, but it was still tight. She had to make do with no safety net.”Our system doesn’t give us grace to improve our life,” Dahlke said. “It’s all or nothing.”There’s national-level research indicating people will likely prioritize the pay raise over the loss of the benefits.Researcher Elaine Maag at the Urban Institute, a policy research organization, interviewed people in the Temporary Assistance for Needy Families program that funds state-administered support like child care assistance and job assistance about what they think about income increasing.”By and large, people want to work more, and they’re not placing benefit receipt and changes in those benefits front and center when making that decision about working more,” Maag said.►How good are you at finances?: Take this quiz to find outJaleesa Gray play with her children outside her home, Tuesday, June 15, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinWhere Wisconsin has its benefit cliffsWhile the exact cliff depends on a household’s location, size and the type of benefits received, a 2020 analysis by University of Wisconsin-Madison researchers found cliffs exist for a family of three earning between $21,960 to $32,940 or as high as $43,290.Analysts ran this calculation for hypothetical households in Milwaukee, Dane and Chippewa counties.For example, Wisconsin residents commonly hit a cliff when they lose full coverage of BadgerCare Plus and enter the Affordable Care Act marketplace for health insurance. This may be at 200% of the federal poverty line in Milwaukee County and 300% in Dane and Chippewa counties.Grace George, a researcher on the report, said the program with the worst benefit cliff is Wisconsin Shares, which subsidizes child care for working parents. The structure of Wisconsin Shares is tricky because child care is expensive, and the high costs of child care differ more dramatically than, say, food in FoodShare, George said.The 2020 UW-Madison analysis indicated families that use Wisconsin Shares hit a cliff when household income rises to twice the federal poverty level. Every $3 increase in income for these families results in a co-pay increase of $1.Researchers found that the way child care assistance is structured incentivizes parents to seek and keep low-paying jobs.However, a spokesperson for the Department of Children and Families, which administers the program, sets the family copayment based on household income at the time of the annual renewal. That copay level stays stable for 12 months and cannot increase before the next renewal, but if household income decreases the copay will also decrease.How you respond to the cliff depends on more factors, including the combination of programs you’re in, Maag at the Urban Institute said. A person with disabilities who needs Medicaid for medical services may be reluctant to try to jump the health care benefit cliff because it could risk their access to medical services. That may also be the case for a pregnant person needing Medicaid, or a parent of young children needing child care assistance.But ultimately, a greater issue is the wide variation in income eligibility for benefits programs. Sometimes policy makers are cognizant of how benefit programs work together, but most of the time the programs are created and administered in silos that don’t account for the bigger picture, Maag said.Circles Coaches, Elizabeth Clark and Matthew Hastreiter speak during Circles Green Bay commencement ceremony, at Green Bay Community Church, Monday, June 14, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinSurviving benefit cliffs is a years-long challengeEvery Monday, about 30 or more people gather at Green Bay Community Church. The meetings begin with attendees forming a circle and each person sharing something new and good in their life, often to the chorus of good-natured laughter and cheers.One warm evening in May, “new and good” included: A birthday party for a daughter turning 7. A new job. A son returning home from the military for a visit. Planting colorful springtime flowers in the garden. Paid time off from work. Going to the zoo and catching sight of a peacock fanning out its feathers.New and good can be as simple — and as important — as showing up and being present at the meeting when one’s week is rough.This diverse group of people meeting weekly share something in common: They’re all aiming to increase their income and decrease their reliance on benefits.Circles Green Bay commencement ceremony, at Green Bay Community Church, Monday, June 14, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinThe group, Circles Green Bay, is dedicated to providing program members with the resources, programming and allies for financial responsibility, as well as the emotional resilience needed to make that happen. People can be in the program for years, and it takes a whole community to care for a family navigating this difficult journey.Jaleesa Gray is a leader in the program. She joined the program to decrease her family’s reliance on assistance and achieve financial independence. It’s taken a great deal of math to a keep child care assistance and hit the financial milestones she needs to accomplish this.►’I quit’: Workers change jobs at a record pace amid burnout, new openings with higher payCircles Green Bay graduates take a group photo with their certificates during Circles Green Bay commencement ceremony, at Green Bay Community Church, Monday, June 14, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinJennifer Schmohe, community development director at Circles, noted that increasing wages could bring people to a cliff, but the issue is they do not know where it is.”There is definitely uncertainty. I think that’s the prevailing problem, is that there’s uncertainty. They don’t know how it’s going to impact them if they do take the wage,” Schmohe said. “We always call it like, ‘trying to shoot the gap.’ Because there’s the cliff, and then there’s the other side of the cliff. So what’s the wage that’s needed to shoot over the cliff, so that you actually don’t get affected by it.”Circles Green Bay is working with government and nonprofit workers to utilize the Atlanta Federal Reserve’s “cliff calculator.”  That way, benefit recipients can “shoot the gap,” making sure they seek and accept a job with high enough wages that improves  their family finances.Schmohe said working with people to navigate benefit cliffs ultimately saves money for the wider community.”As people are able to earn more income, they’re also able to spend more income,” Schmohe explained. “So they’re going to engage in leisure activities. They’re going to invest in vacation. They’re going to invest in their child’s future. If we don’t help people to do that, our community is going to have more people who will be living on state and federal benefits.”Many of the people who join the Circles program are seeking meaning, friends and connection – the same social connectedness that housing advocates find integral to housing and financial stability.For some Circles families, a milestone in that journey was celebrated earlier this summer.Members and allies, dressed in their summer best with sun hats and bright floral dresses, gathered in the church garden after sharing a community meal. As the sun inched closer to the horizon and illuminated the garden’s vibrant summer green, Schmohe and Circles coaches commended the graduating cohort of members.Participants brimmed with appreciation for one another. Certificates on wooden plaques, prepared by a Circles member, were presented to commemorate the cohort’s progress. Parents spontaneously danced with their children to a musical performance afterward, and a retiring Circles trainer was presented with a rose from each member she worked with until she had enough for a bouquet.Anya Batbekh receives her certificate from Candy Conard, left, and Amber Edwards, right, during Circles Green Bay commencement ceremony, at Green Bay Community Church, Monday, June 14, 2021, Green Bay, Wis. Samantha Madar/USA TODAY NETWORK-WisconsinSamantha Madar/USA TODAY NETWORK-WisconsinThis is the loving community Gray feels thankful to be a part of. This community encourages her to dream of a better life.”Yeah, we want to get above the poverty line, but it’s okay to say, ‘I want to go to school. I want more in my life. I’m poor, and I want more in my life.'”Contact Nusaiba Mizan at nmizan@gannett.com. Follow her on Twitter at @nusaiblah.


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