As Pennsylvania seriously considers raising the minimum wage for the first time in over a decade, concerns have been raised that workers receiving a higher wage also will face a “benefits cliff.” A benefits cliff occurs when individuals get a wage increase but the social benefits they lose and the taxes they pay increase more than their additional earnings, resulting in an overall reduction in a family’s standard of living. This brief explores that claim.
A minimum wage increase to $15/hour by 2025 will result in 2.01 million Pennsylvanian workers receiving a raise, which is 34% of the state’s workforce. We find that the vast majority of workers who would receive a wage increase from a $15 minimum wage would not experience any sort of benefits cliff. Most of the major public benefits programs provided by the nation or state are structured as gradual phase-outs, so as workers earn more their benefits are gradually tapered off and their taxes are gradually increased. Most single parents or dual-parent families who utilize multiple benefits programs would still see their net income become higher with a minimum wage increase. One benefits program in Pennsylvania that has a benefits cliff is Child Care Works where benefits decline as income goes up, but eligibility is cut off once a person earns 235% of the federal poverty level. However, as we show in a second paper that explores this program in depth, very few Pennsylvanians are likely to lose benefits at even a $15 minimum. And, those who are threatened with a benefits cliff are likely to find palatable ways to avoid it.
Below we examine different benefits programs offered to Pennsylvanians and how an increase in the minimum wage would change the net income of working families in different family structures. For the very small percentage of workers who partake in multiple benefits programs and might face a benefits cliff, the right way to deal with a potential benefits cliff is not to deny workers a raise, but to ensure that: 1) the benefits programs are structured as phase-outs; and 2) these programs are adequately funded so that those in need will continue to receive benefits until they do not need them anymore.20190709_Cliff-Effects-brief-Penultimate_Final