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Abstract
One-third of America's families with children are low income, meaning their incomes fall below twice the federal poverty level. Although four in five of these families work, many don't bring home enough to cover the everyday costs of living. In this essay, Acs and Turner outline their proposals to enhance low-income families' purchasing power and reduce unusually high housing costs through a package of reforms and policy initiatives that tackle both the income side and expenditure side of family budgets.
Introduction
What does it mean to “make work pay” for working families? For years, researchers and commentators, concerned by the fact that some people stayed on welfare for long periods, argued that public assistance programs actually discouraged work. During the 1990s, major changes in public assistance programs and the tax code helped “make work pay” for families that had not previously been working. In other words, “make work pay” meant “make work pay more than welfare.”
Since then, the number of families relying on cash assistance and not working at all has plummeted by more than 60 percent nationwide. But now, although work pays more than welfare, work alone is not paying enough for many families: not enough to consistently meet family expenses (especially in communities with high housing costs), not enough to be prepared for emergencies, and not enough to secure a foothold on the path to long-term self-sufficiency. “Making work pay” for working families should mean that they can consistently afford the basics—housing, health care, food, and child care—and see real benefits to continuing and increasing their work effort.
Ironically, some of the policy and program changes that have helped make work pay more than welfare have created a catch-22 for low-income working families. Once families have at least one part-time worker, working more hours, adding a second worker, or earning a higher wage does not substantially increase their disposable income because all the public supports the families qualify for when they start entry-level jobs phase out rapidly as earned income rises. Although these families often do not earn enough to cover the costs of basic needs, working more does not markedly improve their well-being because they face extremely high combined marginal tax rates.
In fact, even full-time work may not pay enough to provide a decent standard of living for many families. In particular, housing costs have been rising faster than wages for a growing segment of the workforce. Consequently, a growing share of lower-income families spend more than 30 percent (and in higher-cost markets, more than 50 percent) of their incomes for housing, cost burdens deemed “unaffordable” by federal standards (Katz and Turner 2008). In Baltimore, Maryland, for example, a parent would have to work full time for at least $20.07 an hour to afford the average rent for a modest, two-bedroom house or apartment (NLIHC 2006).
Making work pay for working families requires tackling both the income side and the expenditure side of working family budgets. We propose a package of program reforms and policy initiatives that increase purchasing power, reduce “taxes” on incremental earnings of entry-level workers, and cut the costs of big-ticket necessities like health insurance, child care, and—our focus here—housing.
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