Friday, February 7, 2014

The Welfare Cliff Visualized

This blog has addressed the concept of the welfare cliff a couple of times in the past.  I think I first addressed the concept in 2011 in the ironically entitled "Scraping By on $250,000 Per Year", when I wrote about how as income goes up and the welfare benefits are reduced, families trying to get ahead in life actually experience a decrease in their total income as their gross pay goes up.  I referred to a study that Zero Hedge linked to, showing "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year."
This underscores the most serious problem with reforming welfare laws.  Note that more than doubling pretax income from $14,500 to $30,000 results in a loss of 28% of their net income.  It would take an exceptionally rare person to go through a drastic drop in quality of life for the possibility of getting really high income and better standard of life some day way in the future.
The welfare cliff is back in the news again this week with the CBO's study that showed Obamacare will cause 2 million workers to reduce their hours or leave the workforce.  The previous link, on, links to this 2012 article by the American Enterprise Institute, "Julia's Mother: Why a single mom is better off with a $29,000 job and welfare than taking a $69,000 job". It includes this graph illustrating the welfare cliff:
The graph is credited to Gary D. Alexander, Secretary of Public Welfare for the State of Pennsylvania.  $29,000/year is not quite $14/hour ($13.95), well above minimum wage, but $69k is over twice that wage: $33.17.  I'm going to suspect that someone making $14/hr is going to have to put in some serious effort to get some marketable skills by going to school at night, or some other form of training to double their current pay.   So they can end up with a worse lifestyle? 

That graph is showing that the situation is really worse.  The welfare cliff drops off when income exceeds that $29,000 and the combined benefits and pay stays below that level until income exceeds $69,000.  Combined pay/benefits climbs from $30k to $43 and then drops off even more when income goes from $43 to $44k.  Going from $43 to 44 is a 2.3% raise in pay, but that leads to a roughly 23% decrease in total pay & benefits.  Would you turn down a 2.3% raise if led to 23% less take home pay?   If that single mother stayed sober and didn't put every dime she received up her nose,  $29,000/year is the peak lifestyle on this chart until work pay reaches over $70,000/year. 

While the details vary - the exact totals of pay and benefits and the exact placement of the cliffs - due to the state by state variation in these benefits, the big picture is the same.  Kevin Glass, in the original Town Hall article, implies that governments have been aware of the problem for a long time and do their best to minimize the problem.  Perhaps some do, but I don't believe for a moment that they all do. 


  1. There is a simple two step process to totally reform welfare so that no one would abuse it while still providing aid to the needy. Step 1: set the maximum amount any adult can get from welfare benefits of al types to no more then the minimum wage for 40 hours work a week. Step 2: Transfer the system to each of the 50 states (welfare is unconstitutional for the federal government) and along with it a requirement that all recipients of the new benefit actually work 40 hours a week for it. Make the work something useful that enefits the community and make it within the abilities of the person in need of assistance. Then how they spend the money or how they earn more money is their business not the governments and not the tax payers. I would be under this system the welfare roles wuld drop by 90% within six months.

  2. @ Anonymous: No they wouldn't. There would be corruption, in that the jobs being done would put businesses under, as the government supervisors at the welfare office would underbid actual businesses to provide low cost workers, subsidized with tax dollars, to work in direct competition with them.
    The only way to stop welfare abuse is to eliminate it, and that will never happen.

  3. In the context of a comment it is often difficult to express the entirety of an idea. Let me elaborate on a few points. There would be no welfare office my suggestion includes getting rid of the entire bureaucracy known as welfare. 100% of those highly skilled people would then be on the free market and no longer beng paid by the taxpayer. Second, I'm not suggesting that the low cost workers replace private businesses but I am recognizing that they could replace some of the public employees. That would probably bother some politicians and unions but would benefit the citizens. Third, most of the people on welfare don't really "need" help. They are not stupid and generally able bodied. They are simply lazy and taught by our system to live on the dole. They would not continue in a system that made them work for minimum wage. Ideally what you would have left is the few who truely need help. Like it or not we as a country will continue to help the truely needy at the expense of the taxpayer. Welfare will never be totally eliminated so we need to police it and prevent the massive bureaucracy from sucking the money out of the general fund.
    I have two primary concerns about welfare: 1. It's ever increasing costs continue to push our national debt into nose bleed territory and that is the primary cause of our impending bankruptcy. 2. When we crash, welfare will crash and these millions of lazy drones will become "zombies" roaming our streets and taking what they want. We need to change the system so that it is no longer simply "free stuff" enticing the lazy and create an incentive for them to do something else. I am afraid a sudden crash will be disasterous.