Family Policies in the Build Back Better Act Would Reduce Burdens on Families and Provide a Better Buffer to Economic Instability

12/14/2021 12:00am

Many US workers could not say exactly when or how much they will be working two weeks from today. As one might imagine, this situation makes it difficult to plan and control one’s nonwork life. It also can lead to financial hardship for low- and moderate-income households when they experience a decline in earnings due to reduced hours. Although changes in income can be positive or negative, researchers have found that low- and moderate-income households experiencing persistent income volatility are more likely to skip housing payments and medical care, and they are more likely to use high-interest payday loans. Children in these families inevitably face greater challenges in terms of economic security. This is especially true for children at the lower end of the family income distribution and children of color.

Given the recent passage of the Build Back Better Act (BBB) in the House and ongoing debate about major family policy elements of BBB in the Senate, it is a good time to examine how different types of family benefit programs — specifically monthly in-kind benefits, monthly “cash” benefits, and annual lump sum tax credits — have buffered the loss of earnings associated with work hour instability among families with children in the past. Because some workers of color typically experience more employment instability, it is also worth investigating whether there are different effects by race.

This article documents the overall trend of households’ within-year work hour instability by children’s race and ethnicity. It also documents the relationship between within-year volatility in a household’s market hours worked and the packages of income they receive from various benefit programs. This allows us to separately assess the buffering effects of monthly in-kind benefits, monthly cash benefits, and refundable tax credits. All of the estimates are from the Survey of Income and Program Participation, a nationally representative data set with detailed information on household income, earnings, program participation, and socioeconomic status.

Our research suggests that in-kind monthly benefit programs, particularly the Supplemental Nutrition Assistance Program (SNAP) and housing assistance, did more to buffer the loss of earnings due to work hour instability between 2004 to 2016 than programs that provided cash benefits on a monthly basis, such as unemployment insurance (UI), Social Security, Temporary Assistance for Needy Families (TANF), and Supplemental Security Income (SSI). In-kind benefits also played a larger buffering role than refundable tax credits. Moreover, because refundable tax credits were paid on an annual lump sum basis during this period (in the first quarter of the year after they are earned), they provide a less direct buffer than monthly benefits. Finally, rental housing assistance plays an important buffering role for households that receive it. Unfortunately, the government’s failure to adequately fund housing assistance means that only about one-in-four households with children who are eligible for housing assistance actually receive it.

All of these programs provide essential benefits, but they too often impose considerable costs, burdens, and stigma on people seeking to access them. To reduce both poverty and month-to-month income and earnings volatility among families with children, the United States should adopt a universal child allowance that provides a monthly per-child benefit to all families in a way that minimizes administrative burdens and stigma, universal childcare assistance, and expanded housing assistance so that all currently eligible families actually get it. The House’s Build Back Better legislation takes major steps forward on these three fronts. It temporarily increases the value of the Child Tax Credit and extends it to nearly all low-income children who are currently excluded and establishes a near-universal childcare program that includes all low-income parents. It also provides substantial new funding for public housing and housing vouchers. The Senate should strengthen all three of these important provisions when it takes up the Build Back Better legislation this month.

Black and Hispanic Children are More Likely to Live in Households Experiencing Work Hour Instability Than White Children

As seen in Figure 1, over the entire period examined, white children experienced a relatively low level of caregiver work hour instability. Black children are more likely to live in households where caregivers observed a constantly higher level of work hour instability. Hispanic children also experienced a similar pattern but to a lesser degree. The instability index that Black children experienced on average is about 40 percent higher than their white counterparts. Hispanic children experienced about 18 percent higher caregiver work hour instability compared to what white children encountered.

Figure 1

In-Kind Benefits Buffer Work Hours Instability More than Monthly Cash Benefits or Tax Credits

Figure 2 shows the proportions of the income decline resulting from caregivers’ work hours instability that are buffered by monthly cash benefits, monthly in-kind transfers, and refundable tax credits. The left panel of Figure 2 reports results for all children, which is followed by analysis of Black, Hispanic, and white children. The second panel suggests that Black children may have greater economic buffering due to in-kind programs. For each 10 percent increase in hours instability, cash benefits could buffer about 19 percent of the resulting income reduction for Black children. Among Black children, 54 percent of the income decline associated with a 10 percent increase in hours instability is offset by in-kind transfers. This is more than twice the effect that cash benefits make. It is also promising to see that 17 percent of the remaining income drop is compensated at the post-tax level. For Hispanic children, in-kind programs’ mitigating effect is nearly twice as large as cash transfers, but the tax system appears to be less effective in further protecting them from household income decline due to work hours instability. Means tested in-kind benefits, and cash programs seem to substantially buffer the economic consequences for Black children relative to their white peers.

Figure 2.

Policy Implications

Most of the buffering effect of in-kind benefits is due to SNAP and housing assistance. Besides its antipoverty effects, SNAP is proven to be highly efficient on a monthly basis to buffer households’ negative financial consequences from frequent changes in work hours. This is consistent with prior research that has indicated SNAP’s effectiveness in stabilizing income when income volatility or income shocks occur. Given its effectiveness, the federal government should continue to strengthen and modernize SNAP.

Housing assistance, including public housing and housing vouchers, is also very important in low- or moderate-income households’ economic lives. Unfortunately, the government’s failure to adequately fund housing assistance means that only about one-in-four most households with children who are eligible for housing assistance actually receive it. As CEPR has previously documented, 25 percent of households with children experienced housing insecurity before the pandemic. The House’s BBB legislation includes new funding for public housing, housing assistance, and housing development, but it falls short of what is needed to ensure housing stability and affordability for working-class renters. The Senate should provide additional funding for housing assistance.

Finally, while housing and food assistance is important, children also need a stable income floor. The 2021 American Rescue Plan took an important first step in this direction by expanding the Child Tax Credit (CTC) to include all low- and middle-income children in tax year 2021 and providing half of the total annual credit on a monthly basis between July and December 2021. The BBB legislation passed by the House would extend the expanded CTC for one more year, pay it on a monthly basis in 2022, and make the existing CTC fully refundable in subsequent years. The Senate should strengthen this provision by increasing the value of the CTC and paying it on a monthly basis beyond 2022.

Methodology Note:

The analysis is based on wave data from the 2004, 2008, and 2014 panels of the Survey of Income and Program Participation. Linear regression is used to estimate the relationship between within-year instability in a household’s market hours worked and their income packages. All models adjust for parental education, parental age, child’s age, whether children experience changes in the number of adults in the household across waves within a year, household size, and parental occupation types. Household market income consists of earnings and returns on investments/capital income. Cash transfers include TANF, SSI, Social Security, and UI; in-kind transfers include SNAP, housing assistance, and Special Supplemental Nutrition Program for Women, Infants, and Children. We follow Fox et al.’s methods to estimate the values of housing subsidies and use NBER TAXSIM to estimate tax liabilities and credits. Dollar amount is constant in 2013 dollars. Instability in work hours is measured through the arc percent change of total household work hours, an approach used in income instability studies. To learn more about the details to this methodology please refer to this working paper. All income and work hour instability are log transformed.

The authors thank Shawn Fremstad for helpful input on this article.

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