The Impact of Work Supports
A Snapshot from Detroit
Publication Date: August 2007
Two-thirds of children living in low-income families in Detroit have parents who work. The majority of these children—about 70,000—have parents who work full-time, year-round. 1 In Detroit, as elsewhere in Michigan and throughout the United States, a full-time job at low wages is not enough to make ends meet.
Work supports—such as the Earned Income Tax Credit (EITC) and child care subsidies—can help. But as this snapshot shows, families often lose eligibility before they are economically self-sufficient. In some cases, just a small increase in earnings can trigger a substantial loss in benefits, leaving the family worse off than it was before.
Findings are based on an analysis of results from NCCP’s Family Resource Simulator and Basic Needs Budget Calculator. The Family Resource Simulator is an innovative policy analysis tool that shows the impact of federal and state work supports on the budgets of low- to moderate-income families. The Basic Needs Budget Calculator—which will soon be publicly released—is a related tool that shows how much a family needs to make ends meet without the help of work supports.
Family Resource Simulators are currently available, or under development, for 15 states—including more than 80 localities—and the District of Columbia. The Michigan Simulator includes seven localities—Alpena County, Detroit, Flint, Grand Rapids, Kalamazoo, Lansing, and Pontiac—and reflects policy rules in effect in July 2006.
A Low-Wage Job Isn’t Enough to Make Ends Meet
Figure 1: Basic needs budget for a single-parent with two children in Detroit, MI
A single parent living in Detroit with two children—one preschoolaged and one school-aged—needs an annual income of about $34,000 just to afford minimum daily necessities (see Figure 1). That’s the equivalent of working full-time, year-round at $16 an hour—more than twice Michigan’s minimum wage of $7.15.
Work Supports Can Make a Critical Difference
Figure 2: Family resources and expenses with full-time employment at $8/hour for a single parent with two children in Detroit, MI
Continuing with the same family, Figure 2 provides a breakdown of family resources and expenses assuming that the parent works full-time, earning $8 an hour—or just under $17,000 a year. The first column shows that without work supports, the family faces a gap of more than $15,000 between its annual resources and basic expenses. But the second column shows that the work supports available to Michigan’s families can close this gap. With fulltime employment and multiple benefits, the family has a small annual surplus left after covering basic needs. This surplus of $851 could be used to pay off debt or save for a rainy-day fund.
As Earnings Increase, Benefit Losses Hold Families Back
Figure 3: Net family resources for a single-parent with two children in Detroit, MI
As the parent’s wages increase beyond $8 an hour, however, benefit losses keep the family struggling to get ahead. Figure 3 illustrates how net family resources—that is, resources after subtracting the cost of basic expenses—change as the family’s earnings increase.
- When wages reach $9 an hour, the parent is no longer eligible for public health insurance.2
- Another raise to $11.50 an hour puts the family over the income limit for child care subsidies. This loss causes a significant financial setback, with net family resources dropping well below the breakeven line.
- The family is not even able to cover basic expenses again until wages reach $14 an hour.
Altogether, as the parent’s wages double from $8 to $16 an hour, the family experiences virtually no improvement in its financial bottom line.
Reforms Needed to Effectively Support Work
A comprehensive work support system should:
- Provide adequate family resources. If parents work full-time, their earnings, combined with public benefits, should be sufficient to cover basic family expenses.
- Reward advancement in the workforce. When parents’ earnings increase, their families should always be better off.
This is the challenge for Detroit, Michigan, and the nation.
This fact sheet was prepared by Kinsey Alden Dinan.
1. Low-income is defined as twice the federal poverty level, or $34,340 a year for a family of three in 2007. Source: NCCP analysis based on the U.S. Current Population Survey, Annual Social and Economic Supplements, March 2004, 2005, and 2006.
2. This example assumes that the parent has access to employer-based coverage, so premiums are relatively low. In reality, most low-wage workers do not receive health benefits through their employers. Without this benefit, the parent would most likely become uninsured, as she would be unable to afford coverage on the open market.