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Benefits cliffs hurt families and businesses in our state. They pressure workers to decline job offers and raises, undermining economic mobility and business’ ability to hire and retain talent.

The Benefits Cliff Community Lab is advocating for policymakers to find a solution. North Carolina could adopt policies similar to those in other states, such as offering transitional benefits to help workers achieve self-sufficiency or establishing a more gradual phase-out of benefits.

What would you do?

You’re in a low-income job, working hard to climb the ladder and give your family a better life. And you’re doing well: your employer offers you a pay raise and additional skills training. The problem is, the pay increase pushes you over the income threshold but doesn’t exceed the amount of public assistance you’ll lose as a result. You’re forced to choose between career progression that would improve your family’s standard of living over the long term and continuing to provide for them now.

Pandemic and inflation make the benefits cliff even steeper.

The pandemic decimated the childcare industry, where employment still lags pre-pandemic levels by 12.4%, drastically increasing the cost. In fact, the average cost of infant care in North Carolina ($9,480/year) is 35% more expensive than in-state tuition at UNC-Chapel Hill ($7,020). Compounding the problem, the Bureau of Labor Statistics reports that, for the 12-month period ending in June 2022, the food and gasoline indexes in the South Region jumped 10.3% and 62.7%, respectively. These dynamics make the benefits cliff even more daunting. Food banks across North Carolina are being squeezed. Low-income, working parents simply cannot afford to lose this assistance.

Businesses already face economic uncertainty and hiring challenges.

The benefits cliff hurts businesses by further destabilizing a workforce that is still recovering from the pandemic. Even as businesses face high inflation, rising interest rates, slower economic growth, and risk of recession, labor demand persists. Nationally, businesses added 3.8 million jobs in 2021. Yet, 3.25 million fewer Americans are working compared to pre-pandemic levels.

The problem is more acute in North Carolina.

The North Carolina Budget & Tax Center reported in July 2022 that the state had 130,000 more jobs compared to pre-pandemic levels yet lagged the national labor participation rate by 1.5%. Hiring is already a problem. Obstacles to promoting within such as the benefits cliff make it worse, stifling employees’ career progress and businesses’ ability to compete.

Tax revenue would also increase over time more than it would under the status quo because workers’ income would increase rather than stall at the benefits cliff.

We are advocating for policymakers to find the right policy solution for North Carolina.

North Carolina policymakers should consider solutions enacted by other states, such as the following:

Transitional benefits: Florida, South Carolina, and Massachusetts offer temporary financial support for workers who lose benefits due to an increase in income. Assistance may last from six months to two years and helps workers transition to self-sufficiency after taking a job or earning a raise.
Changes in childcare subsidy co-payments: Families who receive childcare assistance make co-payments that increase as income rises. States can phase out childcare assistance more gradually by establishing a “sliding scale” of co-payments that peak at a higher income level. Ohio, Nebraska, Pennsylvania, and Colorado have made these changes.
Individual development accounts (IDAs): Many states let low-income workers save money in special accounts set aside for long-term investments like education, buying a home, or starting a business. Assets in IDAs do not count against eligibility for some benefits programs. Maine has a special IDA that workers can use for emergency expenses.