Report: Welfare a barrier to economic mobility for low-income workers

At a campaign stop in North Carolina last month, Vice President Kamala Harris suggested that efforts to combat price gouging are needed to help poor and middle-class households. But a new research report shows that government transfer benefits are contributing to the financial burdens and limitations of low-income households.

The report from the Georgia Center for Opportunity highlights how social safety-net programs, while providing a baseline of support, may inadvertently deter low-income workers from seeking higher-paying jobs due to the “benefits cliff.”

The report, titled “Workforce Engagement: A Missing Link in Understanding Income Inequality,” examines how programs like food stamps, Medicaid, and housing subsidies create barriers to long-term financial independence.

The benefits cliff occurs when a small increase in wages results in a significant reduction or loss of government benefits, leaving workers with a net loss in income. This phenomenon discourages individuals from pursuing career advancements and higher-paying jobs.

The report emphasizes that these safety-net benefits can create disincentives for the lowest-paid workers to move up the economic ladder. After adjusting for taxes and transfer payments, the bottom quintile has nearly the same net income as the second quintile, despite earning almost four times less. This is primarily due to the higher level of government support received by the former group.

Work hours are a crucial income determinant — only 51% of prime-age workers in the bottom quintile are employed, averaging 17.4 hours per week, according to the report.

“To effectively tackle income inequality, we must focus on empowering work-capable adults to boost their earned income,” said Jason Gaby, research fellow at GCO and author of the report, in a statement. “The number of hours worked plays a crucial role in driving upward mobility for households in the bottom quintile. By increasing their working hours and transitioning to full-time employment, these individuals can significantly improve their financial standing. We can create an environment where more people can achieve financial stability and independence.”

The GCO study provides an in-depth analysis of how these benefits create a cycle of dependency, preventing low-income workers from achieving financial independence and upward mobility.

To address these challenges, the report proposes several policy reforms aimed at reducing reliance on social safety nets and encouraging workforce engagement:

• Reducing benefits cliffs: Adjust thresholds for benefit eligibility to prevent sudden losses of support as income increases.

• Work incentives: Offer incentives for part-time workers to transition into full-time roles.

• Education and training: Provide better access to educational resources and vocational training programs.

During the North Carolina General Assembly’s last legislative session this spring, lawmakers considered whether to pass a study bill on benefits cliffs and implementing a possible consolidation of welfare programs known as the “One Door” policy. A bill was not filed to study the policy. The state legislature returns for a short session on October 9, but returns for the long legislative session in January.

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