710k Illinoisans avoid work advancement to keep welfare benefits
Welfare programs are structured poorly and punish people for working to climb out of poverty. An estimated 710,000 Illinoisans have intentionally hurt their own economic advancement to keep welfare benefits.
An estimated 710,000 Illinoisans have intentionally hurt their personal finances to avoid losing a welfare benefit, according to a new study.
A new report by the Center for Social Development at Washington University in St. Louis shows nearly 1-in-4 welfare recipients has taken at least one negative action to avoid losing benefits, such as turning down raises or promotions, working fewer hours, declining job offers and refusing to build savings. With 3.2 million Illinoisians living at or below 200% of the federal poverty level, that translates to at least 710,000 people in Illinois intentionally holding themselves back.
Social welfare programs are supposed to support families during times of need. Instead, they punish people in Illinois and across America as they work their way back to independence by removing health care, food and other benefits – a dynamic known as a “benefit cliff.” Research shows these cliffs are not only real, but that they affect a sizable number of Illinoisans.
National research highlights a structural challenge
Benefit cliffs occur when modest increases in earnings lead to a sudden and significant reduction in social welfare benefits. In Illinois, research from the University of Chicago shows a modest $1,000 annual wage increase, from $54,000 to $55,000, would result in an Illinois family losing over $25,000 in child care benefits. This dynamic can leave workers in a significantly worse financial position after a raise or promotion than they were before.
Individuals in households with people with disabilities were more likely to avoid economic advancement, underlining the added vulnerability some groups face when navigating social welfare programs. In Illinois, half of disabled people age 18 to 64 are not in the workforce.
Utah’s experience offers perspective – and a caution
Utah consistently ranks at the top of national social mobility ratings, including in a comprehensive report on social mobility in the 50 states by the Archbridge Institute. But a report from the Sutherland Institute showed even in a state such as Utah, which has a solid foundation for social mobility, benefit cliffs are a real and damaging problem. Their statewide survey of safety net participants found:
- 43% of participants had limited their income to avoid losing benefits.
- 26% had lost benefits because they earned too much, then exited the workforce and reenrolled in assistance.
- 62% reported feeling stuck in low-income jobs because they feared the financial loss from increased earnings would outweigh the gain.
The stories are stark. One single mother lost $600 in health benefits after earning just $20 more per paycheck. Another declined new clients as a nail tech, fearing the additional income would cost her federal food and health care benefits.
If this is the reality in Utah, a state with strong workforce development programs and high social mobility, it is certainly worse in Illinois.
Launchpad, not a poverty trap
Benefit cliffs reform should proceed at the federal, state and local level. Here is where to start:
- The federal government should taper benefits gradually to ensure workers always see a net financial gain when they increase earnings.
- Illinois should smooth cliffs in programs where it has the authority to do so, such as Temporary Assistance for Needy Families.
- Local initiatives should focus on implementing pilot programs to test gradual benefit transition models to identify what works best to avoid penalizing upward mobility. Illinois cities and municipalities can innovate and try out pilot programs to help people navigate cliffs, such as through financial literacy.