There’s a Big Poverty Trap in Illinois’ Welfare System

Means-tested welfare programs provide government aid to individuals based on their need — therefore, at some point, a person’s income disqualifies them for aid. Unfortunately, this can mean that something positive, such as getting a promotion or a raise, can leave a person in welfare worse off than they were when they were receiving public assistance. A new report from Erik Randolph of the Illinois Policy Institute delves into this “welfare cliff” problem in Illinois, explaining how the system creates disincentives for recipients to move off of welfare and toward self-sufficiency.

Randolph analyzed the welfare situation for two groups — single-parent households with two children and two-parent households with two children — in three Illinois counties, looking at a range of welfare benefits: tax credits, food stamps and similar programs, housing assistance, cash assistance, subsidies for child care and health care benefits.

What did he find?

– For single-parent families, benefits could reach $47,894. For two-parent families, benefits reached up to $41,237 in value.
– Combined income and welfare benefits peak at a $12 hourly wage — after that, benefits begin to drop. Single parents would have to make between $35 and $38 hourly to make up for the benefits that they lose earning at a $12 hourly rate.
– If a single mother working for $8.25 to $12 per hour receives a pay raise, bumping her earnings up to $18 per hour, she will end up with one-third fewer resources due to a loss of welfare benefits.

Randolph says the system “reveals a tremendous disincentive to seek work that pays more,” as securing a higher-paying job or raise can actually put a worker in a worse financial position than when he is receiving welfare benefits.

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