Elisabeth Jacobs is Senior Director for Policy at the Washington Center for Equitable Growth. Her research focuses on economic inequality and mobility, family economic security, poverty, social insurance, and the politics of inequality. Prior to joining Equitable Growth, she was a Fellow in Governance Studies at the Brookings Institution, and held positions with the Senate Committee on Health, Education, Labor and Pensions, as well as with the Joint Economic Committee. Here, she shares insights on how best to help families struggling with income volatility.
In a world with rising income volatility, what would it take to help individuals and families be financially stable even when their incomes vary and can be difficult to predict?
It is important to consider how these challenges impact families. Every working parent knows that family responsibilities can interrupt their work in ways that can have a meaningful impact on their household balance sheets. Having children, paying for childcare, caring for elderly and ill family members, and even caring for their own health can all cause severe levels of financial insecurity. These stresses are particularly acute for lower- and middle-income families, but research suggests that they stretch surprisingly high up the economic ladder. Furthermore, the same labor force trends that are contributing to rising income volatility are also major sources of stress for working families. Unpredictable scheduling and lack of steady hours at work, for example, not only contribute to earnings fluctuations; they also make childcare more difficult to arrange and limit resources available to care for other family members. Lack of paid sick time and family leave are also major challenges. We need a suite of policies to help families deal with interruptions to work and reductions in earnings, so that these (often short-term) events do not cause long-term financial distress. And we know that helping prime-age workers secure more stable employment can have big impacts not just for individual families, but for the health of the economy as a whole.
What kind of policies would make a difference?
State and local governments are pioneering solutions to earnings volatility caused by irregular scheduling, variable hours, and lack of paid leave. In 2015, San Francisco passed a work scheduling ordinance that requires retailers to provide employees with schedules at least two weeks in advance, pay employees more when their schedules are changed with little advance notice, partial payment when employees who are on-call are not actually called in, and pay equity for part-time workers. On September 19, Seattle’s city council passed a similar law. California, Rhode Island and New Jersey have implemented paid family leave programs (plus New York, whose policy takes effect in January 2018). California, Connecticut, Massachusetts, Oregon, and Vermont have enacted paid sick leave policies. Momentum is building—several other state legislatures and municipal governments are considering enacting versions of these policies. But for these policies to become the standard, federal policymakers must also take action.
Addressing income volatility also requires us to rethink childcare, from birth all the way up. Public policy may be the best way to provide accessible and affordable childcare supports to all working families. That said, more research is needed to fully understand the connections between income volatility and childcare. There are two issues here: new parents who take time off from work face large reductions in income, but taking short-term leave to care for sick children or deal with lack of daycare (or insufficient after-care) can also contribute to families’ financial instability. Parents should be able to take paid time off to bond with new children, and paid leave policies need to become more responsive to employees’ actual needs, such as allowing employees to break up paid family leave into multiple short time periods, rather than requiring time to be taken all at once. And, beyond paid leave, we have a lot of work to do on providing families with children with reliable, affordable, high-quality child care.
Does household income volatility have a broader impact on the economy?
A growing body of work suggests that widespread family financial insecurity has a deleterious impact on the macroeconomy. For instance, work by Princeton economist Atif Mian and University of Chicago economist Amir Sufi suggests that the Great Recession was (essentially) caused by household income volatility – the long, steep run-up in household debt was followed by an equally sharp drop in household spending that crushed the American economy under its weight. But we need more research, because there are so many important and interesting unanswered questions in this space! Focusing on income volatility, for instance: we know that, during recessions, unemployment insurance is an important stabilizer for families and the economy as a whole. And we know that the share of the workforce covered by unemployment insurance has eroded substantially over time, for a variety of reasons. There is good reason to believe that the erosion of UI coverage undermines the program’s ability to boost the economy as a whole – but this is an empirical question as well as a theoretical one. These are the kinds of research questions that the Washington Center for Equitable Growth is looking to support.