Introduction
Research Questions
- For recipients of TANF, how important are each of the following factors when deciding whether accept a higher-paying job? a) Whether the individual would lose their TANF benefits, and if they do, how hard it would be to resume benefit receipt b) Marginal tax rate (the percentage of new earnings that are eroded by lost benefits) and net income increase (the difference between the dollar value of the earnings increase and the dollar value of the benefit loss) c) Stability of the new job opportunity
TANF cash assistance helps to support families’ basic needs. When considering whether to take a new job opportunity that will increase their income, recipients of TANF may be forced to consider trade-offs. For example:
- Benefit loss and benefits cliffs. An increase in income may result in a loss of TANF benefits. If this benefit loss is substantial when compared to the increase in income, the worker may face a high “effective marginal tax rate” (sometimes referred to as a “benefit cliff”), or the portion of an earnings increase effectively “lost” due to benefit reductions.
- Job stability. The new job opportunity may entail some risk of job loss; for example, a position at a restaurant that is not getting a lot of business. That is, the worker may worry that he or she could lose the new job and need to reapply for benefits.
- Burden of reapplying for benefits and risk of going without needed benefits. People who lose their TANF benefits, but later need to reapply for them, most often must start the application from scratch. In addition to the burden of reapplying, there is the risk of having their application rejected or spending weeks or months without needed benefits, while waiting for the application to be approved.
As a result of this risk and uncertainty, recipients of TANF might be reluctant to take higher-paying jobs that push their income above the eligibility thresholds for their TANF benefits. This can be particularly important if the recipient views the job opportunity as unstable and likely to end unexpectedly, thereby putting them in a position where they need benefits again.
This project carried out a discrete choice experiment to better understand how people who receive federal benefits, including people who receive TANF, weigh the potential risks and tradeoffs of additional earnings.
Purpose
This infographic explores how various potential downsides to increasing earnings — benefit loss, risk of not being able to resume benefits if needed again, magnitude of benefit loss relative to earnings gain, and risk of job loss — play out in the likelihood that recipients of TANF would accept a higher-paying job.
Key Findings and Highlights
- When recipients of TANF knew that lost TANF benefits could be automatically restarted (if needed again later), they were more willing to accept a higher-paying job and more willing to lose benefits, compared to another condition where people were told they would have to reapply for lost benefits. (For ease of exposition, the respondents are described as accepting an opportunity when they recommend that the fictional character accept it.)
- Lower marginal tax rates and higher net income increases each, on their own, made recipients of TANF more likely to accept higher-paying jobs.
- Recipients of TANF were more likely to accept higher-paying job opportunities associated with more stable job situations, compared to less stable job situations.
Methods
The study team conducted a survey with 1,804 current and former benefit recipients, including 269 current TANF recipients, to understand how they might consider an opportunity to accept a higher-paying job. Survey respondents were identified using both a probability sample from a national panel and a non-probability sample of TANF recipients.
Respondents who were current TANF recipients considered several vignettes describing fictional people receiving TANF who were faced with a decision of whether to take a higher-paying job. For each vignette, respondents were asked to decide whether the person should or should not take the higher-paying job. The vignettes were varied in three ways:
- benefit loss and ease of recovering benefits
- amount of monthly earnings increase and benefit loss
- job instability (risk of job loss)
The team then used a Bayesian hierarchical linear probability model to quantify the impact of each of these factors on respondents’ decisions about whether to accept the higher paying job. Findings in this infographic are specific to the sub-set of study respondents who were current TANF recipients.
Glossary
- Effective marginal tax rates:
- The portion of an earnings increase that is effectively “lost” due to benefit reductions. Shortened to “marginal tax rates.”
- Benefit cliff:
- Technically, a benefit loss that equals or exceeds the earnings increase. However, this term is also used generally to refer to high effective marginal tax rates.
- Net income increase:
- In this study, the dollar value of the earnings increase minus the dollar value of the lost benefits