Common Sense Institute New Report Release:
Reimagining the Social Safety Net, Benefits Cliff & Unintended Consequences of Minimum Wage Policy
The Common Sense Institute (CSI) released their first report from Tamra Ryan, the 2023 Coors Economic Mobility fellow focusing on the “benefits cliff” that can disincentivize work, and unintended consequences of the minimum wage. The report demonstrates how many of the programs and policies that make up our safety net discourage rather than incentivize work for employees, forcing individuals into a cycle of government programs and poverty. The “benefits cliff,” is a situation where a small increase in income leads to the cessation of certain government benefits, resulting in a net decrease in income.
Notable Key Findings from the Report:
- The “benefits cliff” is real and exists at discrete wage levels that may hinder some individuals from pursuing increased wages. Those most impacted by a reduction in benefits as their income increases are single parent families. As a result of a $1 wage increase from $30 to $31, a single parent with one child will lose $6.25 in hourly benefits, this is the benefit cliff. The benefit cliff for families with more children is more pronounced at a higher wage. Modeling shows some families are marginally worse off per hour than if they had never received the increase in the minimum wage. Minimum wage increases reduce employment, increase prices, and reduce consumer purchasing power.
- The full impact of minimum wage increases can lower employment opportunity and suppress real wages. An economic modeling simulation of raising the minimum wage to $17.29, equivalent to Denver’s 2023 rate, across the 7 Denver Metro counties shows a host of adverse economy-wide impacts, that disproportionately impact lower wage workers.
- Minimum wage increases have several economy-wide impacts, including:
- Reduced levels of employment: Increasing the minimum wage to $17.29 per hour reduces overall employment by 3,200 jobs (0.2%) in 2023, and further reduces it in 2033 by 29,000 (1.6%).
- Increased prices: The PCE index, a similar measurement of consumer prices to the CPI, increased by 1.43% on average through 2033.
- Reduced real disposable income per capita: Despite nominal wage increases for some workers, the loss of jobs, combined with higher overall prices reduced real disposable income per capita by 0.52%.
- Low wage workers, because of the way the minimum wage works, keep up with inflation, however, they never get ahead. The minimum wage changes are tied to inflation, they receive cost-of-living adjustments, thus, increased wages lead to an overall net zero change.
