Getting poorer while working harder: The 'cliff effect'

Average Walmart workers make twice the federal minimum wage but may still qualify for public benefits.
AP Photo/Mark Lennihan

Forty percent of all working-age Americans sometimes struggle to pay their monthly bills.

There is no place in the country where a family supported by one minimum-wage worker with a full-time job can live and afford a 2-bedroom apartment at the average fair-market rent.

Given the pressure to earn enough to make ends meet, you would think that low-paid workers would be clamoring for raises. But this is not always the case.

Because so many American jobs don’t earn enough to pay for food, housing and other basic needs, many low-wage workers rely on public benefits that are only available to people in need, such as housing vouchers and Medicaid, to pay their bills.

Earning a little more money may not automatically increase their standard of living if it boosts their income to the point where they lose access to some or all of those benefits. That’s because the value of those lost benefits may outweigh their income gains.

I have researched this dynamic, which experts often call the “cliff effect,” for years to learn why workers weren’t succeeding at retaining their jobs following job training programs. Chief among the one step forward, two steps back problems the cliff effect causes: Low-paid workers can become reluctant to earn more money due to a fear that they will get worse off instead of better.

Trapped

“My supervisor wants to promote me,” a woman who gets housing assistance through the federal Section 8 housing voucher program, who I’ll call Josie, told me. “If my pay goes up, my rent will go up too. I don’t know if I’ll be able to afford my apartment,” Josie, a secretary at a Boston hospital, said.

These vouchers are available to Americans facing economic hardship, based on multiple criteria, including their income. Josie was worried that the bump up in pay that she’d get from the promotion would not make up for the loss of help she gets to pay her rent.

Given the possibility of a downside, many Americans in this situation decide it’s better to decline what on the surface looks like a good opportunity to escape poverty.

This uncertainty leads workers like Josie to forgo raises rather than take the risk of getting poorer while working harder. Having to stress out about potentially losing benefits that keep a roof over their heads and food on their table prolongs their own financial instability.

The pain isn’t just personal. Josie’s whole family misses out if she passes on an opportunity to earn more. The government loses a chance to stop using taxpayer dollars to cover benefits to someone who might not otherwise need them. The hospital can’t take full advantage of Josie’s proven talents.

Not always

Some low-paid workers do get farther behind when they should be getting ahead following a raise. But getting higher pay doesn’t always make anyone worse off. Whether it does or not depends on a lot of intersecting factors, like the local cost of living, the size of the raise, the size of the family and the benefits the worker receives.

The cliff effect is something social workers see their clients encounter all the time. And it’s maddeningly impossible to figure out for the people experiencing it and researchers like me alike.

Some benefits, notably the Supplemental Nutrition Assistance Program, the nation’s largest program designed to alleviate hunger, do include some incentives for recipients to earn more. SNAP, as today’s version of food stamps is known, tapers its phaseout for eligibility as incomes grow, rather than rendering people ineligible as soon as their pay crosses a single threshold.

But low-wage workers, such as those in food service, hospitality and retail have no way of knowing what to expect if they get SNAP benefits in combination with other government programs, such as housing vouchers and Medicaid.

At the heart of this problem is that the help millions Americans derive from the nation’s safety net comes from a fragmented system. Sorting out the repercussions of a higher income is nearly impossible because the safety net consists of a wide array of benefits programs administered by federal, state and local agencies. Each program and administrator has its own criteria, rules and restrictions.

Because that trepidation is sometimes unfounded, my colleagues at Project Hope Boston, a multi-service agency focused on moving the city’s families up and out of poverty, and I started to do something about it.

Fixing it

To help families assess risks tied to the cliff effect, we advised the Massachusetts Department of Transitional Assistance, which oversees state-administered safety net programs, to create a digital tool. Social workers are already using a preliminary version of it to show low-wage workers what they can probably expect to happen to their benefits if they earn more money.

You have to consider a lot of variables to see whether someone will experience the cliff effect.
Massachusetts Department of Transitional Assistance, CC BY-ND

The Commonwealth of Massachusetts plans to put this tool online for all to use by Summer of 2019.

After plugging information about variables like how many members are in the household, what benefits everyone receives, the costs of their regular expenses like rent, child care and medical bills, they become better able to make informed choices about their career opportunity based on their family’s personal financial situation.

But workers need more than just a tool, they need help getting over the cliff. We also help workforce development programs implement the state’s new Learn to Earn initiative, which gives low-income families the financial coaching they need to make educated decisions that could affect their bottom line.

This problem is becoming increasingly urgent because dozens of states, cities and counties are enforcing higher minimum wages, and employers are voluntarily raising pay as well, including Target and Amazon. Some places, including Massachusetts and the cities of Minneapolis and St. Paul in Minnesota, are even phasing in $15-an-hour minimums.

But the reality is that even after some of the biggest minimum wage increases enacted at the state level lately, many families are not earning enough to pay for housing and other basic needs without help – for which they may no longer qualify. Several states, including Colorado and Florida, are seeking solutions.

This complicated and frustrating challenge is just one symptom of an overarching problem. In addition to boosting wages, it will take major policy changes, like making child care more universally available and affordable, to offset the skyrocketing costs of living for American workers.

Susan R. Crandall, Director, Center for Social Policy, University of Massachusetts Boston

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Employed but still poor: the state of low-wage working poverty in South Africa

Low-wage poverty is highly associated with unstable work such as in the informal sector.
Shutterstock

Paid employment is generally considered the predominant and most sustainable way of pulling people out of poverty. But the past two decades have seen a global rise in the complex phenomenon of the working poor. South Africa is no exception.

This delink between paid employment and poverty reduction is a major challenge for the government. It means that attention must be given to two things: rapid job creation, and also the creation of decent jobs.

While one may think that being employed suggests the person is immediately pulled out of poverty, this is not always the case. Finding a job does not guarantee someone will receive remuneration that is high enough to cover their basic needs and be relatively secure financially. In some cases, workers reluctantly only work part-time after failing to find full-time work.

Some workers are paid wages below the amount that’s necessary to maintain a decent living standard. They are also not entitled to health or retirement benefits. Low-wage work is also associated with poor working conditions and job insecurity. These include poor health and safety standards, discrimination and excessive work hours.

In other words, for some workers employment no longer guarantees significant poverty reduction. Some workers remain poor because wages are too low to lift them and their families out of poverty.

Main findings

Comprehensive information on the extent of low-wage working poverty in South Africa wasn’t available until our recently published study. We examined the data from the first four waves of the National Income Dynamics Study (NIDS), which took place between 2008 and 2015. NIDS is South Africa’s first national household panel study.

We found that while low-wage poverty probability declined during the 7-year period, in 2015 nearly 20% of workers were still identified as low-wage poor employed. This downward trend is similar to what was found by a 2015 study for the 1997-2012 period, though that piece of research focused on working poverty and didn’t take the low wage threshold into consideration.

When it comes to demographics, low-wage poor were identified as predominantly women (slightly above 50%), Africans (90%), 38 years old on average, without 12 years of education. On average there were five members per household, and two of them were working.

Most low-wage poor were involved in elementary occupations. They were street vendors, domestic helpers and cleaners, and garbage collectors. And nearly 75% of this group were in the informal sector, which is associated with a lack of job security and benefits. This finding is concerning, given the fact that the informal sector only contributes about 7% of the country’s GDP.

What should government do?

There are ways for the government to address these issues.

Policy is a key area where changes can be made. The government should focus on policy that provides affordable quality education and skills training to previously disadvantaged communities. Moreover, education and training programmes should focus on skills and competencies demanded by the labour market.

Low-wage poverty is highly associated with the unstable work environments and insecurity that are experienced by workers in the informal sector, and workers with low-skilled occupations like domestic workers and street vendors. Policy prescriptions should therefore aim to promote economic growth and infrastructure development within the informal sector. They should also focus on increasing awareness and enforcement of labour regulations that protect workers in low-skilled or elementary occupations.

Speedy infrastructure development also helps to pave the way for the creation of more and better jobs associated with higher wages and improved working conditions.

It’s also important that there’s a focus on creating quality jobs and transforming existing unstable, low-paying jobs to more stable work environments that pay workers higher earnings. This involves improving the transition of workers from the informal to the formal sectors.

Government and the private sector should also provide small and informal business owners with easy access to financial and organisational support. These business owners need skills and knowledge about everything from finances to supply chain processes and customer management to help them run and grow their businesses.

There should also be an increase in the awareness of minimum statutory employment conditions among elementary occupation workers and employers, together with the implementation of effective mechanisms to monitor and enforce compliance.

Last but not least, increasing the national minimum wage for all sectors may be a useful, if somewhat contentious approach. Using the currently proposed minimum wage of R3 500 per month, the low-wage poverty rate is somewhat higher (35% in 2008 and 24% in 2015, compared to 26% and 19% respectively using the original lower-amount threshold adopted in the study).

Some workers argue they cannot meet their basic needs with the currently proposed minimum wage (of R3 500 per month). But a higher minimum wage helps improving their productivity and turnover. On the other hand, some employers claim they cannot afford an increased minimum wage without running the risk of retrenching workers and replacing them with cheaper capital. In this case, the state may intervene by assisting firms with special taxation benefits, wage subsidies and training opportunities for workers.

This is an extract from the journal article titled “Employed yet poor: low-wage employment and working poverty in South Africa”, which the writer co-authored with Jade Feder, an Economics Masters graduate at the University of the Western Cape.

Derek Yu, Associate Professor, Economics, University of the Western Cape

This article is republished from The Conversation under a Creative Commons license.

Tired of waiting for water, Ebaleni residents say they won’t vote

“How can I cast my vote when I’m sharing stream water with dogs and cows?”

Mabongi Ngcobo and Zwelihle Zimu at the stream where they fetch water. Photo: Nompendulo Ngubane

“How can I cast my vote when I’m still sharing stream water with dogs and cows?” asks Zwelihle Zimu.

He is one of the residents of Sweetwaters in Ebaleni in Pietermaritzburg who fetch water from a nearby stream. There are no communal taps and the water tanker comes only once a week, says Zimu.

“We fetch water from a stream in the bushes. Some of the dogs swim in that stream. Cows and goats drink from the same stream. The water is dirty. We have no choice but to use the same water.”

In winter, he says, when darkness falls early, it is dangerous to walk to the stream.

When GroundUp visited the stream, which residents call “Emhosheni”, a dog was in the water, drinking.

The stream is shared with animals. Photo: Nompendulo Ngubane

Zimu says some residents buy water from a house in Zayeka, some distance away.
A 20 litre container costs R25, he says.

He takes his car and brings back eight containers which lasts him four days. But others do not have money or transport, he says.

Maboni Ngcobo says neighbours living higher up throw rubbish into the stream. “Sometimes we have to clean up that rubbish and wait hours for the water to clear before using it.”

“The one water tanker is not helping. Some of us are not always at home when it arrives. The only way we are able to get water is from the stream,” said Ngcobo.

She says she is not going to cast her vote.

“It has been over 20 years. We have raised the issue with the ward councillor. He is aware but nothing has been done. I’ve been voting all these years hoping for change. I’m not going to waste my time,” Ngcobo says.

Ward councillor Linda Madlala (ANC) said he had raised the matter with Msunduzi municipality. The municipality had been placed under administration, he said, but there was a plan to put in standpipes and rain tanks and eventually bring piped water to the area.

“No human being deserves to drink water with animals. We need access to clean water,” said resident Mandla Gumede.

 7 May 2019   By Nompendulo Ngubane
 © 2019 GroundUp.

Race still colours South Africa's politics 25 years after apartheid's end

African National Congress supporters at the party’s manifesto launch.
Epa/Kim Ludbrook

It would be surprising if race played no part in South African elections. The country’s colonial and apartheid past ranked alongside the America’s Deep South as among the most racist social orders in the world. If religious polarisation is also considered, South Africa often compared with Northern Ireland and the Israel-Palestine conflict.

The slogan “rainbow nation” seems to have retired along with Anglican archbishop emeritus Desmond Tutu. Personal racist incidents still make the headlines and class remains hued by colour at the structural level. Although slightly over half of the country’s middle class is now black, deep poverty is an almost exclusively a black experience.

Race continues to divide. Take just the best-known parties among the four dozen contesting the country’s general election this month. They all represent radically different perspectives on the race issue. And – at the extremes – there is no crossing the colour line.

For example, almost no black Africans will vote for the minority Freedom Front Plus. Almost no whites will vote for the Economic Freedom Fighters (EFF), the third-largest party. Strident racial rhetoric from some EFF leaders. And its election manifesto envisages for massive tax rises, a proviso that’s alienated white voters. For its part, the Freedom Front Plus’s campaign to defend minorities against affirmative action and black economic empowerment doesn’t attract many black voters.

But, when moving towards the leading parties of the centre, the governing African National Congress (ANC), and the official opposition, the Democratic Alliance (DA), are making serious efforts to reign in racial rhetoric among their leaders and members. They also have manifestos that promote non-racialism.

Non-racialism

The ANC and DA documents and speeches have repeated their long-held goals of non-racialism. Both try to ensure that people of all colours are represented in their executive structures.

Recently, ANC veterans condemned a statement by their powerful secretary-general urging a vote against “whites” and for “blacks”. And the party’s election campaign, particularly in Gauteng and the Western Cape, chooses issues and rhetoric which include white voters.

The DA too has more than once disciplined leaders, or got members to resign, because of racial comments on twitter or elsewhere

At a deeper level, the DA is attempting a strategy so difficult that it has only been accomplished twice before in South Africa’s history. The party seeks to change from an overwhelmingly white party to a predominantly black party. The South African Communist Party achieved this during the 1920s. The Liberal Party followed a similar path during the 1960s.

Historically, the ANC’s Freedom Charter affirmed that

South Africa belongs to all who live in it, black and white.

The ANC’s alliances from the 1950s included organisations centred on coloured – people of both European (white) and African (black) ancestry - , Indian, and white members. It incrementally opened its own membership to supporters of all colours before 1990.

At times, a few commentators have criticised the ANC as being dominated by either isiXhosa speakers or Nguni language speakers, but these complaints found little traction. The ANC’s membership embraced a nation-wide representivity among black Africans, and included activists from all of the race-based definitions entrenched during apartheid.

Strategically, the ANC is the only African nationalist party that has had to accommodate – in policy and rhetoric – a significant white minority.

More than nine-tenths of white settlers fled Algeria after independence in 1962; the same in Angola and Mozambique following independence in 1974. This also happened in Zimbabwe between the 1980s-1990s. White Algerians had the right to French citizenship; white Angolans and Mozambicans had the right to Portuguese citizenship. Over half White Zimbabweans had the right to either South African or British citizenship.

By contrast, the overwhelming majority of white South Africans have no rights to other citizenships.

The people

White South Africans are only make up 7,8% of the population. But they remain strategically important. They still own most capital and most companies. They constitute a significant proportion of management and in most of the professions.

The western powers, investors, and media remain sensitive to their concerns and anxieties.

Interestingly, statistics show that white living standards have risen higher than anyone else’s since 1994. That is not exactly the “genocide” proclaimed by the global alt-right.

There is a wide range of black views on colour and race relations. Some activists in the Rhodes-must-fall and Fees-must-fall movements expressed total alienation from whites and “whiteness”. Simultaneously, there are many interracial friendships and some interracial marriages.

Tensions bound to remain

The world’s oldest democracy, the US, and the world’s largest democracy, India, also have to grapple with the contradictions between nonracial or non-caste ideals in their constitutions, and affirmative action and preferential procurement laws and regulations.

In South Africa, similar issues continue to be addressed by a host of institutions. These range from the Human Rights Commission, to the Equality Court and similar quasi-judicial entities, in addition to test cases decided by the Constitutional Court..

Given that the country has the world’s largest white minority living under black rule, colour line tensions will remain a fairly permanent feature of the country’s political landscape. The same can be said of the US, where the world’s largest black minority lives under white rule.

Keith Gottschalk, Political Scientist, University of the Western Cape

This article is republished from The Conversation under a Creative Commons license.

Railway line occupied as rapid Philippi informal settlement grows

Over 1,000 new shacks in Eyadini spread over PRASA land

Backyarders from Samora Machel, Kosovo, Marikana, Philippi East and other areas have been flocking to Eyadini informal settlement at Philippi train station to establish themselves. All photos: Vincent Lali

The Eyadini informal settlement on the railway lines in Philippi has shot up as backyarders from Samora Machel, Kosovo, Marikana, Philippi East and other areas flock to the site. There are now 1,000 households.

When GroundUp visited, community leader Phakama Ngolo was spray-painting numbers on new shacks. “We as leaders want to know which shack belongs to whom … If the shack owners are still at work, we don’t put numbers on their shacks until the weekend,” said Ngolo.

Community leader Siya Boyisi said, “At weekends, this place becomes a hive of activity as former backyarders coming in bakkies offload their building materials and noisily put up their shacks.”

The newcomers buy building materials from roadside hardware stalls, many on credit. They first mark out their plots and put up their shacks before introducing themselves and getting registered on the list of Eyadini shack dwellers.

The shacks are now spreading along the railway lines towards Nyanga station.

Community leader Phakama Ngolo writes numbers on the shacks of newcomers.

“Some come here because their shacks get flooded … Others leave their family houses because they are too cramped,” said Boyisi. “We delight in staying here as we don’t pay rent. Crime is non-existent and no one has reported a shack burglary or robbery to us leaders.”

Boyisi said they want mobile toilets and water taps.

Ayanda Bodla stands next to the tap on the railway line which the community has installed.

The community put together money and set up one water tap two weeks ago according to shack dweller Ayanda Bodla. “After residents return from work, you can see a long queue,” he said.

He said people in nearby Kosovo and Samora Machel don’t want to share their taps as the queues become even longer for them.

There is no electricity, so people use candles and paraffin lamps at night. Bodla said fires have broken out twice since the newcomers occupied the land.

“We are scared to ask the City of Cape Town to help us with building materials to rebuild our shacks because we are staying here illegally,” he said.

PRASA spokesperson Riana Scott said, “The invasion of PRASA land is illegal and dangerous … The disposal of wet waste onto the tracks compromises the underlying rail infrastructure and poses a risk to safe train operations.”

Scott said, “The matter is being addressed by our principals as a matter of urgency in collaboration with various appropriate entities to find a sustainable solution.”

Mayco Member for Human Settlements Malusi Booi said PRASA had turned down the City’s offer to remove the residents earlier this year.

Thandeka Ngxoko lives in a small shack placed on railway lines. She has a fruit and vegetable stand and also sells socks to support her family. She was one of the first to move onto the land earlier this year.

Siphokazi Njemla used to rent a backyard shack for R450 a month in Samora Machel. She lost her job as a security guard in Killarney and had to relocate. “My contract expired and now I have no money for rent,” she said. “I used to walk past here when I go to the station to catch a train and envy the residents for staying here without paying rent.”

Thumeka Mdingiso and her son level ground for their shack. She said she used to rent a shack in Kosovo for R360 a month. She works as a char in Samora Machel and Kosovo informal settlement, earning R70 or R100 a day. She has to support three children, aged 18, seven and three.

 5 April 2019   By Vincent Lali

 © 2019 GroundUp.