Improving Work Supports: Closing the Financial Gap for Low-Wage Workers and Their Families

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Commissioned by the Economic Policy Institute for its Agenda for Shared Prosperity, this report describes why work support benefits are critical for low-wage workers. It explains the current state of work supports in the U.S., highlighting the need to address benefit “cliffs” and high marginal tax rates; funding constraints; and participation barriers. The report concludes with a concrete set of proposals for reform at the national level.

Read or download the full report at the Economic Policy Institute website

This is an excerpt from the full report.

Low-wage workers and their families face rising levels of economic insecurity. Analysts estimate that anywhere from a quarter to a third of U.S. workers—35 to 46 million—hold low-wage jobs that provide few prospects for advancement and wage growth.1 Further, such jobs typically offer few of the employer-sponsored benefits—such as health insurance, paid sick leave, retirement plans, and the flexibility to deal with family needs—that higher-income workers often take for granted.

At the same time, the costs of supporting a family—housing, medical care, child care, and transportation—have increased, consuming larger portions of the family budget. Increasing gaps between family income and basic expenses combined with easy access to expensive credit have conspired to saddle millions of working Americans with crippling debt. In short, low wages, few employer-provided benefits, few routes to advancement, the increased costs of basic necessities, minimal savings, and increased debt have left large numbers of American workers and their families economically vulnerable. Many such families are merely one crisis—a serious illness, job loss, or divorce—away from financial devastation.

Government “work support” benefits—such as earned income tax credits, child care assistance, public health insurance coverage, and housing assistance—can help low-wage workers close the gap between insufficient earnings and basic expenses. And there is now abundant research evidence that work supports positively affect employment outcomes and family incomes, which in turn benefit children.2 For example, a series of expansions in the federal Earned Income Tax Credit (EITC) has been credited with contributing to an increase in employment and decrease in poverty among single-mother families from the late 1980s to the mid-1990s.

Spending on work supports increased substantially in the 1990s, especially in the period following the 1996 federal welfare reforms that emphasized moving recipients to employment. Still, few families and individuals receive the work support benefits for which they are eligible. For example, the majority of workers who claim the federal EITC or obtain health insurance for their children do not receive other critical forms of assistance, such as help with child care or housing.

Despite funding increases, overall spending levels continue to pale in comparison to what is needed to provide a comprehensive work support system for low-wage workers. Inadequate funding is largely a function of a lack of political will. But there are structural problems with the funding mechanisms as well—fixed block grants to states and state matching requirements constrain how much can be spent. For instance, when the economy declines, demand for work support benefits may increase, placing increased demand on state resources at a time when states are cutting spending.

Other factors constrain access to work support benefits. Most of these programs were originally designed to provide a safety net for the poorest Americans, many of whom had little attachment to the labor force. Reforms in the late 1980s and 1990s sought to uncouple eligibility for public health insurance, and later child care assistance, from cash assistance. Those reforms were enormously helpful, but they have not gone far enough. In some states, work supports are still accessed primarily through welfare offices and are stigmatizing. Most benefits were designed to assist single mothers and their children; there are few benefits available to non-custodial parents and low-wage workers without children.

Further, existing work supports suffer from burdensome application procedures, complex rules and delivery systems, and lack of coordination. But even the families fortunate enough to receive the multiple benefits for which they are eligible face another set of challenges. Eligibility levels are typically low and families lose benefits before they can get by on earnings alone. In some cases, just a small increase in earnings leads to the complete termination of a benefit (e.g., child care subsidies and health insurance)—the family faces a “cliff” and ends up financially worse off despite earning more.

If we agree as a nation that full-time workers should be able to meet their basic needs and those of their children, we need a comprehensive, integrated work support system that is explicitly designed to address the challenges faced by ever-growing numbers of America’s workers and their families. U.S. work support programs need to be modernized and systematically overhauled.

This paper begins by describing why work support programs are needed. It then goes on to explain the state of current U.S. programs and why we need to reform them. The final sections of the paper describe some concrete policy proposals for reform and offer recommendations about priorities and next steps.

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