Aparna Mathur is a resident scholar in economic policy studies at the American Enterprise Institute. Her research has focused on income inequality and mobility, tax policy, labor markets, and small business.
Because income volatility’s most pernicious effects are on workers with low wages, who work part-time and have irregular schedules, providing skills training and education to help get these workers into better-paying full-time jobs is a surefire approach to reducing volatile incomes.
Income volatility can affect all socioeconomic groups, but it particularly hits those with low incomes and little or no savings; for them, shocks like health problems or divorce can be especially devastating. Volatility could be mitigated if employers made more regular payments for part-time or contingent workers with irregular schedules, if Earned Income Tax Credit (EITC) payments were made quarterly instead of annually, and if Unemployment Insurance were expanded to cover such workers. However, these are Band-Aids for a problem that stems from low incomes and underemployment.
The best, long-term approach is to help people move out of low-wage, part-time, and contingent jobs with irregular hours by ensuring that they have the education and training to be qualified for better, full-time employment. The goal is not only to reduce volatility but to provide opportunities for upward mobility.
Several states that offer and incentivize education, on-the-job training, and apprenticeships have had promising results. Wisconsin’s Fast Forward initiative includes government grants to employers who agree to provide six months of work-based training. Both existing employees and new hires are eligible to participate in the program. In South Carolina, Apprenticeship Carolina gives employers a $1,000 tax credit for every worker hired as a registered apprentice, and workers can receive up to two years of community-college training. Both programs have had high take-up rates.
Although public subsidies and tax incentives for such workforce development initiatives would be costly to bring to scale and require buy-in from, and coordination among, employers, government, community colleges and other training providers, they will more than pay for themselves in the long term. Employers surveyed say that they are beneficial, helping them have a greater pool of workers with skills they need, even if trained workers do not stay with the business that oversees their training. Workers also tend to be happy, as the training enables them to move into better jobs.
Unfortunately, many low-skill, low-wage workers do not have pathways to move up, low-skill jobs will continue to disappear due to automation, and some employers in some industries may be less likely to see the benefits of training their low-income or contingent workforce. Unemployed workers also need access to these training opportunities.
Nonetheless, if the ultimate goal is to make incomes higher and more predictable for more Americans, investing in education and skill development could reduce volatility for millions of workers, while benefiting employers and the economy at large.