Association for Public Policy Analysis & Management

The U.S. directs a large portion of its anti-poverty policy spending toward low-income workers with children. As a result, poor families with some market earnings qualify for substantial means-tested benefits. However, because program rules link receipt to household income, program eligibility and benefit amounts change if earnings change. When increases in earnings trigger reductions in benefits, families experience a tax-like effect known as implicit or effective marginal tax rates (MTRs). Benefit losses can partially, fully, or – in some cases – more than offset increased earnings, and families who experience such MTR events find them hard to predict, frustrating, and destabilizing.

Earnings can increase when workers get raises, take on second jobs, or move to higher-paying jobs. Local and state minimum wage laws are an increasingly common cause of raises, with over half of the US population subject to a minimum wage above the federal level. Understanding the relationship between a mandated wage increase and changes in benefits can yield insight into how workers adjust their labor supply and how minimum wage changes might affect the overall well-being of low-income families.

Using longitudinal qualitative data, this paper examines the interactions between Seattle’s $15 Minimum Wage Ordinance and benefit reductions. Data come from the Seattle Minimum Wage Worker Study and consist of transcripts and interview notes from three waves of interviews with 55 low-income workers with children.

Our analysis step is descriptive, tracking the changes in benefits that workers experience as a result of wage increases caused by the MWO. We record benefit use across the three waves of data collection, noting changes and linking changes in benefits to changes in wage levels. Next we examine how workers understand the relationship between their earnings and benefit levels. To what extent do they ex ante predict that changes in earnings will affect benefits? When benefits do change, what do they realize about the reasons behind these changes? Preliminary analysis suggests high levels of general awareness. As one worker notes, “making a dollar more … my rent is going to be higher.”

Finally, we look for how workers interpret and act on these experiences. How do they make sense of the benefit changes? How do they believe the net changes (earnings plus benefit eligibility) affect their personal and family well-being? To what extent do workers plan for adapting to or preventing benefit changes? Here we find a mix of interpretations. Workers appreciate that their earnings cover more of their expenses. As one worker noted after being told that she earned too much to continue to get food assistance, “I was actually proud. I was like, ‘good for me.’” On the other hand, informants feel that benefit reductions blunt the possible positives of the minimum wage. One compared policymakers’ promises to her lived reality: “I feel like what they’re trying to improve isn’t really going to improve.”

In the discussion we consider what these results mean for policy design and planning around future wage efforts.