Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway

47 Pages Posted: 29 Apr 2020

See all articles by David Altig

David Altig

Federal Reserve Bank of Cleveland; Federal Reserve Banks - Federal Reserve Bank of Atlanta; University of Chicago - Booth School of Business

Elias Ilin

Federal Reserve Banks - Federal Reserve Bank of Atlanta; Boston University

Alexander Ruder

affiliation not provided to SSRN

Ellyn Terry

affiliation not provided to SSRN

Date Written: January, 2020

Abstract

Benefits cliffs, which occur when earnings gains are offset by the loss of public benefits, have long been recognized to create financial disincentives for low-income individuals to earn more income. In this paper, the authors develop a new methodology to study benefits cliffs in the context of career advancement. The authors illustrate the change in net financial resources for an individual pursuing the health care services career pathway from certified nursing assistant (CNA) to licensed practical nurse (LPN) to registered nurse (RN). Accounting for increases in taxes and the loss of public benefits, the authors show that a single mother with two children receiving maximum available public benefits can be financially worse off in the short and medium term when advancing from the entry-level CNA position. Over a lifetime, career advancement leads to large financial gains. The authors also calculate a large lifetime net public savings if the mother advances to the RN position. Finally, the authors illustrate two policy interventions: a childcare subsidy phaseout that is gradual rather than sudden, and an application of transitional public benefits with asset mapping of financial resources. The authors show how each of these interventions benefits a low-income parent seeking to advance up the economic ladder.

Keywords: provision and effects of welfare programs, skills, human capital, effective marginal tax rates, benefits cliffs, workforce development

JEL Classification: I38, J08, J24

Suggested Citation

Altig, David and Altig, David and Ilin, Elias and Ruder, Alexander and Terry, Ellyn, Benefits Cliffs and the Financial Incentives for Career Advancement: A Case Study of the Health Care Services Career Pathway (January, 2020). FRB Atlanta Community and Economic Development Discussion Paper No. 2020-1, Available at SSRN: https://ssrn.com/abstract=3587626 or http://dx.doi.org/10.29338/dp2020-01

David Altig (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Atlanta

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Federal Reserve Bank of Cleveland ( email )

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University of Chicago - Booth School of Business

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Elias Ilin

Federal Reserve Banks - Federal Reserve Bank of Atlanta ( email )

1000 Peachtree Street N.E.
Atlanta, GA 30309-4470
United States

Boston University

595 Commonwealth Avenue
Boston, MA 02215
United States

Alexander Ruder

affiliation not provided to SSRN

No Address Available

Ellyn Terry

affiliation not provided to SSRN

No Address Available

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