VIII. Income and Work Supports

Income and work supports represent a broad range of policies and programs intended to help low-wage workers make ends meet, provide greater economic stability for their families, and promote job retention.16 As noted above, low wages combined with frequent lack of employer-provided benefits (i.e., health, pension), high levels of job turnover, limited opportunities for advancement, and the costs associated with working (e.g., child care, transportation) all contribute to low levels of earnings. Without taking into account costs associated with working, such as child care and transportation, the household income for a family of three with one full-time worker earning the federal minimum wage is just 67 percent of the 2005 federal poverty level (Anderson et al. 2006).

This section highlights three strategies for providing income and work supports: (1) post-employment assistance, including accessing publicly funded benefits and financial supports such as food stamps, the EITC, child care subsidies, and personal supports such as career counseling; (2) financial incentive programs that encourage and improve the rewards of work; and (3) asset-building strategies that help individuals build financial reserves to support their career goals and family needs.

1. Post-Employment Assistance

A range of post-employment strategies focus on helping low-wage workers, particularly individuals transitioning off welfare, access the range of publicly funded income supports available to them (e.g., the EITC and child care assistance) and improve their ability to retain employment and advance through personal supports such as assistance with job-related problems and career counseling. In many programs, these services are provided through program staff who offer a range of “case management services” to address a wide range of issues that individuals encounter once they find jobs.

The existing research base on the impact of these kinds of post-employment supports and services is mixed. Post-employment programs evaluated to date generally have not produced effects on job retention and advancement, although studies currently underway should provide more information in this area. In the Post-Employment Services Demonstration (PESD) of the late 1990s, welfare agency staff sought to contact individuals who found employment and provide them with counseling and support, job-search assistance, resolution of benefits issues, and service referral. This approach generated disappointing results, particularly in terms of promoting greater retention (Rangarajan 1998). But the employment services rendered there were quite limited, especially since case workers managed very large caseloads and targeting of the services to those in need of help was quite poor.

Several sites in the national multisite Employment Retention and Advancement evaluation, sponsored by HHS and conducted by MDRC, are also testing the effectiveness of post-employment case management services. One program in Illinois targets a group of TANF recipients that appear to be “stuck” in low-wage jobs. The program provides a range of post-employment services to help them increase their earnings in their current job or find a better job, and has shown early effects on increasing earnings and reducing welfare receipt. Other programs in this study that also provide post-employment case management services have shown limited effects (Bloom et al. 2004; Hamilton 2006). Most of these programs delivered services through the TANF agency, although some also involved the workforce development system and one program—the Achieve Program in Cleveland—also directly involved an employer and provided post-employment services at the worksite (Anderson and Martinson 2003).17

At the same time, nonexperimental research indicates that the receipt of financial work supports is associated with increased employment rates, increased family income, lower rates of return to welfare, and improved job retention (Holt 2006; Loprest 2002; Patel et al. 2002). While limited experimental research has been completed in this area, recent studies show that delivering a package of supports that includes health insurance, child care subsidies, and a wage supplement (the effect of which is similar to receiving multiple benefits in the current work support system) can increase work effort, decrease poverty, and increase the well-being of young children (Zedlewski et al. 2006). Employee utilization of available work supports can also benefit employers in that they can enhance job retention, thereby reducing the costs associated with high job turnover. (Frank, Greenberg, and Zdenek 2006; Relave 2005).

Increasing awareness of the challenges low-wage working families face in making ends meet and the desire to support work, especially in connection with welfare reform, motivated the federal government and many states to create, expand, and improve access to key financial work support programs. These efforts include major expansions in the EITC and Medicaid, the creation of the State Children’s Health Insurance Program (SCHIP), increased child care resources for low-wage working families, and increased flexibility to support state efforts to simplify, streamline and increase participation in the Food Stamp program. Federal and state spending on EITC, Medicaid/SCHIP, food stamps, and child care increased by 27 percent (in real terms) between 1996 and 2002, the period following the 1996 federal welfare reforms, with Medicaid/SCHIP accounting for the greatest share of the increase (Zedlewski et al. 2006).

In spite of these expansions, participation in financial work support programs is often low. For example, estimates from the late 1990s indicate that 80 to 85 percent of eligible tax filers received the EITC (Berube 2006). However, among working poor families in 2002, only 7 percent received all EITC, food stamps, Medicaid/SCHIP, and child care subsidies for which they were eligible (Zedlewski et al. 2006). Several factors are consistently cited in the research literature as key to understanding the under use of work support programs among low-wage workers. These include lack of awareness of programs or how to access them, a complex and fragmented system with varying eligibility criteria and program rules that are administered by multiple bureaucracies in different locations, burdensome application and recertification processes, stigma due to association with the welfare system, unavailability of opportunities to access due to work schedules, and in some cases (e.g., child care) insufficient funding (Frank et al. 2006; Patel et al. 2002; Relave 2002; Sawhill and Haskins 2002).

Given these trends, one innovative approach for helping low-wage workers is to develop better methods for delivering post-employment assistance, including financial and personal work supports. Based on a review of the literature and discussions with experts, cutting-edge approaches to increase access tend to be marked by two key characteristics.

• Connecting low-wage workers to multiple work supports at a single point of access in places other than welfare offices they are more likely to frequent. There are a variety of organizational bases that could provide a convenient point of access. We focused on strategies to provide access to work supports at the workplace, One-Stop Career Centers, and neighborhood community-based organizations offering employment services. All of these locations provide an organizational setting that is not associated with “welfare” and are already in contact with a significant share of individuals likely to be eligible for work supports. In addition, they can maximize the impact of work supports by facilitating access to a bundled package of benefits in a single location and by making this linkage in conjunction with other employment-related services.18

• Using technology to overcome the challenge of navigating a diverse range of work support programs, each with different and often complicated eligibility criteria that have different interactive effects at different income levels. State and local agencies and nonprofit organizations have developed web sites that provide information about public benefit programs, and some states have advanced to providing interactive eligibility screeners and benefit calculators, a few of which offer multiple program screeners and benefit calculators (Schott and Parrot 2005). In addition, other web-based systems, such as benefit calculators, have also been developed that perform a variety of functions that allow individuals (either on a self-serve basis or together with a staff person or advocate, such as a coach or case manager) to screen for eligibility, facilitate application submission and tracking, calculate wages against cost of living, and estimate the impact of various work supports on budgets at various wage levels (NHSA 2005; Seedco 2003; WOW 2006). These kinds of technological applications streamline access to benefits as well as serve as an educational tool that illustrates the value of packaging work supports in clear and concise terms.

This study highlights several programs that connect workers with financial work supports within a broader array of services aimed at enhancing job retention and career advancement through resolution of job-related and personal problems. Some of these programs also include financial services that help workers better budget existing resources, reduce debt, and increase assets. We include those programs that have tackled the challenge of bundling benefits to facilitate access, utilizing nontraditional pathways and mechanisms for improving awareness, accessibility, and availability of work supports.

Box 12 highlights two programs—The SOURCE and EarnBenefits—that illustrate a multifaceted approach to providing work supports. In appendix table A.9, we highlight several programs that facilitate access to work supports at the place of employment. For example, through its TJXtra! initiative, TJX Companies, Inc., strives to increase employees’ awareness of public benefits—including the EITC, SCHIP, and food stamps—by providing brochures and other information in all employee lounges. Marriott International employees can call its Associate Resource Line, a resource and referral service, 24 hours a day, seven days a week, to get assistance with accessing and applying for public benefits, as well as referrals for other personal, legal, and professional issues. Cascade Engineering employs two on-site caseworkers from the human services agency that work with employees who are former TANF recipients to access support services and address work- and family-related problems.

Other programs that we highlight are operated out of One-Stops or other social service agencies. Seattle’s King County One-Stop attempts to bridge workforce and work support services to promote job retention and advancement. The Centers for Working Families/LISC initiative in Chicago provides community residents access to work supports, workforce services, and financial coaching at neighborhood-based organizations in low-income communities. Finally, illustrating another type strategy, Connectinc.’s Work Central Call Center in North Carolina operates a telephone-based case management and referral system for low-income workers and former TANF recipients to connect participants to a wide range of services including assistance with applications for child care, referrals to low-cost skills training, and assistance in accessing financial aid and financial guidance.

2. Financial Incentives

Another innovative approach for promoting the employment and income levels of low-income workers are financial incentives. Policymakers have used financial incentives to improve the rewards associated with low-wage work a great deal since the 1960s, beginning with the earned income disregard policies in public assistance programs. More recently, tax credits, wage supplements, and bonuses have been used more extensively. The primary goal of these efforts is to raise the rewards associated with work, and thus to increase the levels and duration of employment.

Evaluations of these efforts—many of which involve rigorous research designs—generally support the view that financial incentives that reward work can raise employment rates and earnings among low-wage workers. The clearest example of a financial incentive program is the EITC, which now provides a roughly 40 percent earnings subsidy to low-income working parents up to about $10,000 of earned income. In addition, 14 states and the District of Columbia have implemented their own Earned Income Credits to supplement the federal program (Ross Philips 2004). Indeed, the research suggests that the federal EITC has succeeded in raising employment levels among low-income single mothers (e.g., Berube 2006; Eissa and Liebman 1996; Meyer and Rosenbaum 2001).

Other programs have focused on providing earnings supplements to welfare recipients after they leave cash assistance and work full time. These include the Canadian Self-Sufficiency Program (SSP) and the Texas Employment Retention and Advancement (ERA) program.19 SSP operated outside the welfare system, while the Texas initiative was part of the local TANF welfare-to-work program. With about one-third of enrollees using the incentive, SSP showed large effects on employment, earnings, and job stability of program enrollees, and unlike most other welfare-to-work initiatives, resulted in more individuals moving out of poverty (Michalopoulos and Berlin 2001). However, while only preliminary results from the Texas ERA evaluation are available, they show relatively small effects on employment levels of welfare recipients in only one of the three sites where the program was studied (Martinson and Hendra 2006).20

Many states have provided financial incentives for welfare recipients to work through the TANF earned income disregard, which allows individuals to work and still remain eligible for benefits. The Minnesota Family Investment Program (MFIP) was the most successful of these efforts, which like SSP, had large gains in employment and earnings and reductions in poverty that were attributable to the financial incentives. However, while the program produced impacts among long-term recipients, it had limited effects for welfare applicants and new recipients, and the impacts faded after the treatment ceased (Miller, Knox, and Gennetian 2000). Financial incentives also figure prominently in the Jobs Plus demonstration, where public housing residents were offered a drop in the rate at which their rents increased with higher earnings, although it was unclear exactly which part of the treatment contributed most to the improvement.

The research of SSP and MFIP indicates these programs are most successful when subsidies are tied to full-time work in the labor market or when accompanied by other work or job-search requirements. Unless the subsidies are permanent, their positive effects on work tend to fade over time, although they may not completely disappear. The research evidence also indicates some potential limitations of these approaches. Tax credits or subsidies tied to family income—like the EITC—phase out as income rises. This could create incentives for those in the phaseout range to reduce their work effort. In addition, it is not clear whether or how well financial incentives for work improve retention or advancement outcomes for those already in the labor market.

We include financial incentives as an innovative approach because of their relatively strong research results in increasing the incomes of some low-income families, particularly when they are linked to full-time employment or work requirements. However, aside from the TANF earned income disregards, we did not find extensive use of financial incentives at the program level in the review done for this study. While many programs are using more incremental financial incentives such as gift cards to promote participation and finding and keeping jobs, in general we did not find much innovation in this area, particularly among those that involved strong incentives or operated at significant scale.

As shown in appendix table A.10, there are exceptions. To encourage both working and meeting child support obligations, there are efforts to extend the EITC benefit to noncustodial fathers who are paying child support. New York recently implemented this effort for state-level taxes. In terms of TANF, Arkansas (see box 13) and Hawaii recently implemented an innovative statewide financial incentive to those who leave cash assistance for work. While these programs are very new, they are being implemented statewide and individuals that receive the financial incentive will count toward the states’ TANF participation rate. On a smaller scale, Florida has been operating the Passport to Independence program in three counties, providing significant financial incentives on an individualized basis. Case managers work with TANF recipients individually to determine appropriate milestones, and clients receive approximately $1,500 to $2,000 annually if they meet their individualized benchmarks.

3. Promoting Asset-Building among Low-Income Families

Not surprisingly, poor families save less and have fewer assets than those with higher incomes. With little to no income left over after paying for necessities, it is difficult to generate savings. In addition, savings or assets may affect poor families’ eligibility for income support programs which may affect their incentive to save. Many low-income families are renters and cannot afford to purchase their own homes. The lack of existing assets among low-income families means they do not have the same access to financial institutions or receive the same incentives to save as higher income families do (Cramer, McKernan, and Sherraden 2005).

Asset-based policies and programs are growing rapidly across the country, with a strong interest in the public and private sector in developing these types of programs for low- and middle-income families. Key components of this approach include:

• Individual Development Accounts (IDAs). IDAs are subsidized savings accounts targeted to the poor. Participants are required to deposit a minimum monthly amount (often around $20). Savings are matched by public or private funds, provided that assets are used for purposes that promote well-being and self-sufficiency. 2:1 is the most common match rate, but many programs offer higher match rates in order to increase participation. Common approved uses of IDA funds include home purchases and repairs, postsecondary education or vocational training, and microenterprise ventures.

• Loans and staff support to establish microenterprises. Some programs emphasize careful self-assessment and screening to determine the appropriateness of self-employment, often accompanied by training periods and incubator models. Other programs collaborate with larger organizations, firms, or unions to establish partnerships between the participant and established entities through networking events and mentoring relationships. Programs help participants access capital for start-up funding, often through IDAs or microloans. Program staff help participants develop a business plan, and continue to work with microentrepreneurs during businesses’ early stages.

• Financial education and literacy. Most programs require financial literacy classes on topics such as money management and budgeting, to increase the saving rates of program participants. They can potentially increase the efficacy of IDAs by enhancing participants’ knowledge regarding budgeting, savings, and the benefits of asset ownership. Ongoing reminders or follow-up by staff to encourage regular deposits are often a part of this strategy.

Most asset-building strategies have not been rigorously evaluated. The Tulsa, Oklahoma, IDA program, one of the 14 IDA programs initiated under the American Dream Demonstration (ADD), is the only IDA program in the country that has been evaluated by random assignment. Results of the evaluation demonstrate that saving in an IDA had a positive impact on low-income families’ asset accumulation, particularly in the form of homeownership (Mills et al. 2004). Another nonexperimental study of the American Dream Demonstration found that IDAs can help low-income individuals save and accumulate assets (Schreiner, Clancy, and Sherraden 2002).

Research on microenterprise as an asset-building strategy is also limited. Studies have found that it can be difficult for low-income, as well as other individuals, to start their own businesses. However, a five-year nonexperimental evaluation of TANF recipients who enrolled in microenterprise programs found positive results after two years: participants were more likely to be employed and earning higher incomes and less likely to be receiving welfare (Klein, Alisultanov, and Blair 2003).

Because of the level of interest in asset-building for low-income families as well as evidence of some limited but positive effects (although some of it is from nonexperimental studies), we include this approach in our study. As shown in appendix table A.11, among the many initiatives, we profile three innovative programs in this area, which are strong and relatively mature programs that represent different types of asset-building strategies for low-wage workers. EARN, based out of San Francisco, offers IDAs for participants to save toward higher education, home purchase, or small business start-up. Parents and children can also save together by opening a Savings Account for Education (SAFE). Women’s Initiative for Self Employment (WISE) is the largest microenterprise training program in the country. WISE provides training in business management and access to seed, startup, and operating loans, as well as coaching and networking opportunities for new business owners. Finally, the Economic and Community Development Institute (ECDI) in Columbus, Ohio, integrates financial literacy training, IDAs, and microenterprise support into a comprehensive package (see box 14).