Getting poorer while working harder: The ‘cliff effect’
Forty percent of all working-age Americans sometimes struggle to pay their monthly bills.
There is no place in the country where a family supported by one minimum-wage worker with a full-time job can live and afford a 2-bedroom apartment at the average fair-market rent.
Given the pressure to earn enough to make ends meet, you would think that low-paid workers would be clamoring for raises. But this is not always the case.
Because so many American jobs don’t earn enough to pay for food, housing and other basic needs, many low-wage workers rely on public benefits that are only available to people in need, such as housing vouchers and Medicaid, to pay their bills.
Earning a little more money may not automatically increase their standard of living if it boosts their income to the point where they lose access to some or all of those benefits. That’s because the value of those lost benefits may outweigh their income gains.
I have researched this dynamic, which experts often call the “cliff effect,” for years to learn why workers weren’t succeeding at retaining their jobs following job training programs. Chief among the one step forward, two steps back problems the cliff effect causes: Low-paid workers can become reluctant to earn more money due to a fear that they will get worse off instead of better.
Crandall, Susan, "Getting poorer while working harder: The ‘cliff effect’" (2019). Center for Social Policy Publications. 90.