Report Released on the Disincentives for Low-Wage Workers to Increase their Income

There are employed individuals in Clark County who are struggling to make ends meet. Whether living just above, at or below the poverty line, many low-wage workers struggle with self-sufficiency and depend on tax incentives and assistance programs for their family’s daily needs. Because of this, low-wage earners have multiple disincentives for working full time or for receiving minor salary increases. It is important for employers to be aware of what these disincentives are and how their entry-level or low-wage employees could be impacted by an increase in wages, for example.

Tax credits and public assistance programs in Clark County

Unemployed and low-wage workers will typically qualify for several tax credits and public assistance programs, especially if they have children. People qualify for these programs based on the amount of money they earn, so a change in income could render them ineligible for benefits. These programs include:

• Earned Income Tax Credit (EITC)
• Child and Dependent Care Tax Credit (CDCTC)
• Child Tax Credit
• TANF Cash Assistance
• Child Care Assistance
• Supplemental Nutritional Assistance Program (SNAP)
• Affordable Care Act (ACA)
• Ohio Medicaid
• Home Energy Assistance Program (HEAP)
• Housing Assistance (Section 8)

Support program gaps can be a significant disincentive to work

The Income Cliff Effect occurs at certain earned income thresholds when an individual becomes ineligible for assistance due to increased annual earnings. The support low-wage workers receive from public assistance programs can make a significant impact on their quality of life, sometimes far more than an increase in wages could. For example, if a raise causes a worker to exceed the amount of income allowed for receiving subsidized child care or housing, a worker could suddenly find themselves responsible for the entire cost of these items, even if they only received a $2 per hour salary increase. This would leave them with fewer resources than they had prior to receiving the raise. So, when evaluating employment opportunities, low-wage workers often consider what their total resources would be. In doing so, it may be financially beneficial for them to continue working part time or for lower wages than it is to work more hours and lose their public assistance.

The just above poverty gap is also relevant

In some cases, low-wage workers are not considered at or below the poverty line but live just above it because of tax incentives or their ability to take advantage of public assistance programs like SNAP. In this scenario, removing a single incentive could take them from being just above the poverty line to below it.

What can companies do to incentivize workers?

First, executives and human resource professionals must be aware of the scope and scale of the issue. According to research conducted for Clark County by the University of Cincinnati’s Economics Center, “Approximately 74 percent of the 54,681 households in Clark County are self-sufficient. The remaining 26 percent do not have self-sufficient levels of earned income for their household composition.”

To combat the disincentives to work faced by these individuals, employers may want to consider making changes to their benefits packages. For example, if by working more hours an employee would lose their childcare assistance, an employer could help to make up for it with their own childcare program.

Ultimately, “Income cliff effects negatively incentivize individuals to keep their annual earnings low, in order to keep full public assistance benefits or, in other words, disincentivize individuals from workforce development and career improvement. These cliff effects negatively impact the labor market and deter individuals from bettering their situation by accepting a promotion, working more hours, or increasing their level of education or training” (Economics Center). When employers can offer incentives like paying for college, helping with childcare, transportation and healthcare costs, they can offset some of these disincentives while encouraging employees to advance their training and grow in their career path.

Read the full report

For a detailed breakdown on the impact tax incentives and public assistance programs have on low-wage workers in Clark County, read Profiling the Disincentives & Opportunity Costs for Low-Wage Earners in Clark County, Ohio by the Economics Center Research and Consulting.

A copy can be obtained here.