Restructuring the Eligibility Policies of the Child Care and Development Fund to Address Benefits Cliffs and Affordability

June 18, 2021

Headshot of Brittany Birken
Brittany Birken Director and Principal Adviser
Photo portrait of Elias Ilin
Elias Ilin (Former) Assistant Policy Adviser and Economist
Photo of Alexander Ruder
Alexander Ruder Assistant Vice President
Photo portrait of Ellyn Terry
Ellyn Terry University of Washington

Summary

This paper explores how the current eligibility policies of the federal Child Care and Development Fund (CCDF) create affordability challenges and benefits cliffs that act as barriers to economic self-sufficiency. By examining Florida data and policies, the authors demonstrate how the program’s existing co-payment schedule affects the same hypothetical family living in two contrasting Florida counties: one with state median living costs and one with high living costs. The authors find that the CCDF income eligibility exit threshold is too low, particularly in high-cost counties. That occurs because the exit threshold is based on the state median income, as opposed to more local measures that better approximate and reflect local cost of living. The authors propose and calculate the additional family and government costs of two alternative CCDF phase-out designs, which would remove the CCDF benefits cliffs. Both proposed alternatives feature smooth phase-out schedules that align the subsidies with the local cost of childcare, thereby reducing barriers to economic mobility unintentionally created by government policies.

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Discussion Paper 2021-1

JEL classification: I38, J08, J13, J24

Key words: childcare, benefits cliffs, human capital, skills, provision and effects of welfare programs, effective marginal tax rates

Digital Object Identifier (DOI): https://doi.org/10.29338/dp2021-01

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

David E. Altig, Elias Ilin, Alexander Ruder, and Ellyn Terry

January 31, 2020 —

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.

Benefits Cliffs as a Barrier to Career Advancement for Low-Income Adults: Insights from Employment Services Providers

Alexander Ruder, Julie Siwicki, Ellyn Terry, and Tamilore Toyin-Adelaja

March 31, 2020 —

How do employment service providers explain benefits cliffs to clients who want to advance in their careers? To answer this question, the authors conducted three focus groups with a range of employment service providers. Focus group participants report that counselors and clients struggle to manage benefits loss because of a lack of clarity on program rules and difficulty finding appropriate jobs that pay enough to outweigh the loss of benefits. When advising clients about career advancement, counselors use a range of intake processes to determine clients’ immediate needs and assess their skills and occupational interests. Career counseling activities typically focus on short-term goals and immediate needs rather than longer-term career planning, though participants acknowledge the value of labor market information that shows the long-term gains of advancing up career pathways. The authors conclude with several recommendations to help counselors manage complex benefits eligibility rules, the short-term needs of clients who face barriers to employment, and labor market information to guide training and employment decisions.

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