Work and Material Hardship of Low-Income Households

Background and Purpose: While market work is beneficial as one of the most important income sources for low-income households, it entails costs as well. The costs encompass indirect costs, such as the loss of available time for taking care of household needs, as well as direct costs, such as paying for child care and transportation. For low-income households, these costs of work might have more serious effects because the costs are likely to be substantially high compared with their income. Recently, several studies have looked at the association between work and material hardship of low-income households; however, they largely rely on simple correlations. The current study examines how work is associated with material hardship of low-income households, by comparing material hardship among the households who are at the same income level but in the different work statuses and earnings level. Based on the potential seriousness of the costs of work for low-income households, this study hypothesizes that households who work more and whose earnings account for larger portion of their income are more likely to experience material hardship than those who are in the same income level but are not involved in the labor market as much.

Methods: The Sample of this study includes 1,065 mothers from the longitudinal Survey of Wisconsin Works Families, a survey of stratified random sample of those who are in Wisconsin TANF program (W-2) between late 1997 and early 1998. The survey data includes rich economic and demographic information, including the measures of material hardship, at the time of 1998, 1999, and 2003. This study uses the first two waves of the survey data and the state administrative data to get accurate information on earnings and government program participation. The study first describes the levels and patterns of material hardship for the sample. Then it examines the association between work status/earnings levels and material hardship while controlling for total income and other observed confounding variables, by utilizing cross-sectional logit models and fixed-effects models. It also analyzes the relationship between the changes of work status/earnings level between the two years and the entry into material hardship in the second year, by utilizing logit models only for the cases which do not experience material hardship in the first year.

Results: Experience of material hardship was quite common: 65% in 1997 and 60% in 1998 experience at least one type of material hardship. The results of logit models support the hypothesis: work is positively associated with experience of and entry into material hardship. However, fixed-effect models do not show statistically significant relationships, although the directions are consistent with as the logit model results.

Conclusion and Implication: The results generally suggest that work entails substantial direct and indirect costs for low-income households. These costs of work might provide disincentives to work as well as have direct negative effects on the economic well-being of low-income working households. To achieve their goals, current welfare polices should address this issue.