Understanding Economic Risk for Low-Income Families: Economic Security, Program Benefits, and Decisions about Work

This project explored how workers with low incomes who receive federal benefits weigh factors including marginal tax rates, benefit loss, ease of resuming benefits once lost, and job instability when deciding whether to accept an earnings increase. The study team fielded a discrete choice experiment survey to assess the impact of these factors on benefit recipients’ potential willingness to accept a higher-paying job.

Key Findings:

• Benefit program participants were less likely to say they would accept a higher-paying job if it meant facing benefit loss. (For ease of exposition, in this brief we state that the respondents said they would “accept a higher-paying job” when they recommended that a fictional character accept it.)
• But when they knew it would be easy to restart benefits if they lost earnings (that is, the lost benefits could be automatically resumed without their having to reapply), they were more likely to accept a higher-paying job and more willing to lose benefits.
• In addition, being able to automatically resume benefits in the event of earnings loss made benefit program participants more willing to accept a higher-paying job even if some of the job’s characteristics were less favorable (such as high marginal tax rates, small net income increases, and unstable job situations).
• Benefit program participants were more likely to accept higher-paying jobs that were more stable versus those that were less stable. Benefit program participants were more willing to accept a higher-paying job in spite of less favorable characteristics (that is, high marginal tax rates or small net income increases) when the job was more stable.
• Lower marginal tax rates and higher net income increases (earnings increase minus value of benefit loss) each, on their own, made benefit program participants more likely to accept higher-paying jobs.

Glossary

Effective marginal tax rates: the portion of an earnings increase that is effectively “lost” due to benefit reductions. Shortened to “marginal tax rates.”

Related Products:

• Full Report and Technical Appendix
• Infographic (findings for TANF program only)
• ASPE’s Effective Marginal Tax Rates/Benefit Cliffs Home Page