Poster #11 - Behavioral Responses to MW Increases Among SNAP Recipients: Evidence from Audit Data

• In Event: Friday Poster Reception

Abstract

The interaction of different policies targeting lower-income households can have unintended consequences on their income and well-being. For instance, literature has shown that Minimum Wage (MW) increases make households more likely to be ineligible for the program. If they are eligible, the SNAP benefits will decrease due to the household's gross income. However, do households still have sufficient resources to maintain SNAP benefits despite an increase in the MW?

This paper examines the effect of an increase in statewide MW on SNAP eligibility and benefits. Do households strategically adjust their income or deduction reporting to maintain SNAP eligibility? What implications do these behaviors have for policy effectiveness and program integrity? The MW policies aim to boost household income and reduce poverty. Empirical studies confirm that MW increases can effectively raise household earnings. However, higher income from MW hikes may unintentionally disqualify households from means-tested assistance programs such as SNAP. This creates a potential policy trade-off: increased wages versus loss of eligibility for essential support programs. Households may adjust their behaviors to retain eligibility, thereby “maxing out” income-based criteria.

To test this theory, I utilize 25 years of audit data from the SNAP-Quality Control (SNAP-QC) for over 600,000 households, which provides exact income, deductions, and benefits for these households. I employ a difference-in-difference approach, comparing households in states with a MW increase above the federal level to those that did not. Furthermore, I use an event study analysis to examine how state MWs change the behavior of SNAP recipients over time.

I find two important results. First, not all the households are maxed out with shelter and final excess shelter deductions, which cover the largest part of their overall deductions. Similarly, half of the households in the sample are not getting maximum SNAP benefits. This suggests that households are not at their maximum deductions, and they can claim higher deductions if there is an increase in gross household income due to a rise in the MW. Second, using the DID approach, I find that an increase in the MW leads to increased deductions, particularly the shelter deduction in the first year following the MW increase and SNAP benefits. However, it decreases immediately after the first year of increasing the MW, suggesting that the initial adjustments are temporary, and households may face constraints or reduced eligibility in sustaining higher benefit levels over time. 

These findings have significant implications for both social policy and the design of income support programs. They demonstrate that there is an opportunity for policy changes to provide people with better information and help them maximize the benefits they qualify for. Some families may not be aware of or be unable to claim all the deductions for which they are eligible, resulting in missed opportunities for important support. Finally, policies such as making deductions easier to claim or increasing deductions for child-related costs may be necessary to ensure that well-meaning wage hikes do not harm low-income families.

 

 

Author

• Amit S Jadhav, University of Wisconsin-Madison
  Presenting Author