During discussions about raising the state minimum wage to $15, we offered that many unintended consequences might be realized. We worried that youth unemployment might lag because why would you hire a teen when you could have an adult with work experience. We shared that policy choices like this only serves to accelerate automation and eliminate jobs for the very people everyone, including us, are trying to help (proliferation of “self-check-out” technology). There are several other issues we raised, but a new issue has emerged I’m not sure anyone saw coming—the benefits cliff.
Thousands of Delawareans receive social transfer payments from the government each month. These funds help those needy families that are struggling financially to afford housing, food, utilities, child care, health care, and more. Many of these same neighbors are employed but have low incomes. Recently, some employers reported that some of their lower paid employees, when faced with promotion opportunities and the potential for higher income, refuse the promotions and better wages because that raise will make them ineligible for some of the state services they have used to cover household or family expenses. This reaction is quite logical. If you make $35,000 a year and were offered a $6,000 raise to $41,000, you might lose some of the state subsidies you had relied upon before and now must finance yourself because you are financially ineligible for further benefits. Welcome to the benefits cliff.
Few lower wage employees are going to qualify for jobs with big jumps in income. It’s unlikely you will move from $35,000 annually to $50,000 or $60,000 in a single promotion and net more income even after covering what was subsidized before. That’s the conundrum. I also wonder if there is a psychology around the predictability of life, even at those lower wages where families are in a known rhythm and taking a promotion is risky because what if it doesn’t work out? What if you don’t like the new position or boss or get let go? The Federal Reserve Bank of Atlanta has done research on the benefits cliff, and this is something we at the State Chamber will be looking at more closely too.
This is complicated. But if we are going to help move employees from where they are to where they desire to be, the larger “we” may have to solve some knotty issues to help more people willing to take that promotion.
