February 29, 2024

Editor's Page

Cliff Notes

Mark R. Howard | 6/29/2021

We live in a state where a third of all households earn above the federal poverty level but still meet the standards as ALICE — asset limited, income constrained, employed. That’s a bureaucratic acronym for the working poor — the cashiers, nursing assistants, office clerks, servers, laborers and security guards who aren’t officially poor but don’t earn enough to afford basic household necessities such as housing, childcare, food, transportation and health care.

The general thrust of much social policy in recent years has been toward work-based solutions — using public assistance as an incentive to those low-income workers to get training or education that helps them move up the economic ladder. Support a nursing assistant, for example, with childcare subsidies or educational assistance so he or she can become a better-paid RN, the thinking goes.

It’s the right idea, but the structure of many benefits programs often works against their own goals.

Brittany Birken understands the problems in the system well and is one of the people working to improve it. A native of Sarasota, Birken went to FSU intending to become a lawyer, but a course in early childhood development put her on the road to a doctorate and a career focused on policies meant to help low-income families. Her research and work at the Lastinger Center at the University of Florida, which studies early childhood education, and the Florida Children’s Council, the umbrella organization for children’s services councils statewide, brought her to the attention of the Atlanta Fed, which has hired her as the principal adviser to its community and economic development team.

Congress has tasked the regional Federal Reserve banks with maximizing employment, and in her research, Birken has documented how the structure of many benefits programs constrains employment and opportunity for limited-income families with children.

One focus for Birken, who’s based in Tallahassee, has involved the Child Care and Development Fund, the federal government’s largest childcare subsidy program. She says she began to appreciate structural problems in that program during one of her first jobs, a position at the state’s Office of Early Learning. A parent called seeking help. She had been offered a 10 cent-an-hour raise, but she told Birken that the additional income from the raise would push her over the income threshold at which she would completely lose the childcare subsidies that enabled her to go to work in the first place. The value of the lost benefit exceeded the increased earnings: Earning $200 more each year would cost her $9,000 in childcare assistance — so accepting the 10-cent raise would cost her family $8,800.

“Unconscionable,” Birken says. “It went against our whole work-based solutions approach.”

What the woman had encountered is called a benefit cliff. Support benefits decline gradually as the recipient earns more, but at some federally defined income level, the benefit stops altogether. That cliff frequently happens at a level that means the value of the lost benefit exceeds the value of increased earnings. According to the Florida Chamber of Commerce, there are more than 80 “anti-poverty” programs, each with its own income cliffs — the food-stamp program, for example, along with energy assistance programs, job training, school breakfast programs, housing assistance and childcare assistance.

Birken and her team at the Fed have just produced a paper — see the link below — using Florida as a case study in documenting how the benefits cliff in the childcare subsidy program acts as a barrier to economic self-sufficiency. The paper cites the example of a two-parent, two-child family in Palm Beach County. Together, the parents earn $59,000. But if their income goes up by just $1,000, they hit a cliff and lose all eligibility for childcare subsidies. Earning $1,000 more means the family experiences a net financial loss of $13,630 — a 19% decline in their total financial resources.

Statewide, according to the paper, only 3% of the population lives in counties where a family with two adults and two young children can afford the full cost of childcare without forgoing other basic needs.

The paper offers tools that states and local communities can consider to keep childcare affordable and accessible for low-income families. Birken can’t advocate for any specific policies, but her team’s paper provides a range of options: The state, which matches a portion of the federal childcare dollars, could consider increasing its contribution beyond its current level so that a family wouldn’t lose the entire benefit all at once. Eligibility limits could be restructured to create a smoother phaseout. Local communities could likewise step up, through some combination of tax dollars or non-profit contribution. Congress could change the law to eliminate drastic benefits cliffs.

From a public policy standpoint, the costs are a classic short-term vs. long-term proposition. In the short term, extending childcare benefits costs more, but “if parents avoid taking higher-paying jobs in order to keep government assistance, this can result in a net loss to the taxpayers in the long run, in the form of hundreds of thousands of foregone employment taxes and greater government assistance payments,” the paper states.

Birken says the pandemic has highlighted how important childcare is to parents’ ability to work. The Fed paper can help support everything from career counseling to engaging employers to helping communities map gaps in their social support systems. The pandemic’s effects on employment have created “a window of opportunity to think about structural barriers in a way that’s unprecedented,” says Birken. “There’s a strong readiness among so many of our partners — employers, colleges and the workforce system — who see how important this really is.”

Editor’s note: The Fed team’s paper is available at atlantafed.org/economic-mobility-and-resilience/advancing-careers-for-low-income-families.


— Mark Howard, Executive Editor


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