Pueblo Chieftain (Colorado), July 26, 2008: ‘Cliff effect’ stymies single moms

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July 26, 2008 01:56 am

Single women with children not only have a hard time becoming economically healthy – they face an equally difficult battle staying that way as they make more money.

The Colorado Women’s Foundation found in a study that even modest increases in wages for low-income workers can lead to sharp reductions in their benefits, knocking the families back below their financial break-even line.

Gretchen Gagel McComb, president of the foundation, called it the “Cliff Effect” because low-income workers face several financial cliffs as they try to move from minimum wage to better salaries but then lose benefits intended to help the working poor.

For example, a low-income woman can get a salary increase that actually ends up costing her money because she loses subsidized child care or health benefits for her children, according to the study.

McComb said the cliff effect causes some low-income workers to turn down raises or promotions so they won’t lose benefits that could mean the difference between treading water and going under financially.

The cliff effect is worse for residents in Denver than Pueblo, according to the study. In Denver, a single mother can make $16 a hour and be losing $6,000 a year after paying for basic living expenses, the study said. That same worker can break even at $10 an hour because he or she hasn’t lost energy-assistance and child care benefits. In Pueblo County, perhaps because the cost of housing is lower, low-income workers don’t sink as far into the red when they lose benefits. But nor do they rise much above break-even until they are making $16 an hour or more.

McComb said one woman told her that she had to quit a job because it was paying her too much to quality for government health coverage for her son, who has cerebral palsy. She’s now in school trying to improve herself to make enough money to get a job that will include health coverage for her son.

“You can actually see why someone would turn down a raise,” McComb said.

She said business owners told her they hadn’t understood why some employees wouldn’t accept more money. Often the workers were embarrassed about their situation and wouldn’t explain it to their employers.

“These women really do feel like they’re trapped, “McComb said.

McComb said the “cliff effect” has to be fixed in order to make it easier for thousands of families in Colorado to move out of poverty and stay out.

“The first step is to name the issue,” she said. “Then we can come together and address it.”

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