The CEO of CKE Restaurant Holdings, Andy Puzder, writes in The Hill about the effect that welfare programs have on some of his employees at Carl's Jr. and Hardee's:
some of our crew members are declining promotions to shift leader positions because the increase in income would disqualify them for food, housing, medical or other government benefits.
These promotions are the first step on the ladder to becoming a general manager, potentially making up to $80,000 a year. It's a shame they're unable to take a promotion for fear of losing public assistance. Following local minimum wage increases, other employees have refused additional hours or requested fewer hours to keep their incomes below the cutoff for receiving benefits.
Called the "welfare cliff" by policy wonks, this growing trend is little more than people responding to incentives. Simply, people get trapped into working less and keeping valuable benefits over working more and losing them.
For example, eligibility for food stamps ends when annual income exceeds 130 percent of the poverty line, or a little more than $15,000 a year, for an individual. At $8.25 an hour or less, employees can work a full-time schedule of 35 hours a week and still qualify for these benefits. But when the minimum wage increases above this level, as it has recently in many cities and states, employees must reduce their hours to keep their benefits.
Similarly, in most states, Medicaid eligibility ends when annual income exceeds 138 percent of the poverty line. Understandably, some employees choose to work less and keep the thousands of dollars' worth of benefits instead of working a little more and losing them.
The impact a loss of government benefits has on financial security for people living in poverty can be draconian. It can lock them into poverty by making the chasm between government dependence and independence too broad to cross.
As a result, people forgo opportunity for safety, which prevents them from realizing the independence and self-reliance that come with personal success and a job.
Mr. Puzder recommends converting existing food, housing, and medical benefits programs into an expanded Earned Income Tax Credit.That doesn't explain, though, what would happen to those too young, old, or sick to work. And the Earned Income Tax Credit would also phase out at some point, creating its own perverse incentives.