The Cliff Effect:

         When it Doesn’t

        Pay to Work

Oklahoma Institute for Child Advocacy supports increasing childcare subsidies

Problem: The cliff effect punishes families for increasing their earnings

The cliff effect occurs when a family loses eligibility to necessary work support benefits, such as a child care subsidy, due to increased earnings. The “drop off” in benefits can leave a family much worse off financially, bringing their up hill climb toward economic sufficiency to a startling halt.

How does the cliff effect impact Oklahoma’s families?

The cliff effect can trap people in poverty. To illustrate: The cost of child care for one infant is roughly $500 per month. A family earning $14/ hour ($2425 per month) is eligible for a subsidy, so that they pay only $189 per month.

But when that family receives a ten-cent/ hour raise (an additional $17 per month), they lose their child care subsidy and are suddenly responsible for the entire $500. The extra $17 per month in earnings costs them $311 per month in lost child care subsidies.

Solution:

Increase the income eligibility limits for child care subsidies and phase out benefits more gradually so as to avoid the abrupt end of all benefits. The Department of Human services estimates the cost of reducing the cliff effect will be $3.5 million.