Going over the benefits cliff: The catch of higher wages


Fed Communities Staff

Cafe worker, like those at risk of going over the benefits cliff, assists a customer

Landing a better-paying job is the dream of many Americans. But what happens when making a couple dollars more an hour makes you ineligible for the Supplemental Nutrition and Assistance Program? The Children’s Health Insurance Program? Medicaid CHIP and Section 8 housing subsidies? You might go over a benefits cliff.

“All of these programs have an income threshold,” explains Dr. Alex Ruder, a researcher with the Atlanta Fed.

The risk of falling over the “benefits cliff” is particularly concerning for people making between $13 and $17 per hour. Losing access to the safety net makes it harder, not easier, for their households to make ends meet. That’s even though—and, ironically, because—their paychecks are higher.

What are benefits cliffs? 

Check out this explainer from the Atlanta Fed. 

Pushing past the cliff effect 

Workers are often reluctant to accept higher-paying jobs or advance their careers because the tradeoffs aren’t worth it in the short-term.  

“While a new job could provide much greater long-term income, the immediate shortfall might make it feel too risky to pursue higher-paying work,” says Steve Shepelwich, a senior community development advisor with the Kansas City Fed. “Losing access to public benefits that help with expenses—such as medical insurance or child care—in many cases means that workers have a financial disincentive to invest in their upward movement from lower-wage jobs.” 

Benefits cliffs may create barriers to individuals and families seeking to achieve greater self-sufficiency. They can also make it more difficult for businesses to find employees and support employees’ career advancement.  

What Are Benefits Cliffs? Leia’s Story Watch the video to learn more about benefits cliffs from the story of Leia, a hypothetical single mother of two children who lives in Miami, Florida. (video, 3:10).
Fed tools help identify, navigate benefits cliffs

The Federal Reserve has a mandate to foster maximum employment. Improving economic mobility and resilience is complementary to that mandate. The Federal Reserve Banks of Atlanta, Kansas City, and Richmond are partnering to provide actionable tools, training, and data. These resources are designed to help workers, service providers, and policymakers locate and navigate benefits cliffs.  

Explore demo versions of all of the Fed’s CLIFF tools at the Atlanta Fed’s Advancing Careers for Low-Income Families initiative. Researchers and analysts working on the initiative conduct research on benefits cliffs. They also develop tools to support community and state efforts to improve economic security for families and meet the talent needs of businesses for a healthy economy. 

Want to know more? Dr. Alex Ruder joined the Cleveland Fed for a FedTalk on February 16, 2022 to discuss benefits cliffs and the tools the Fed has developed. Watch the full event >