With the steady paycheck disappearing for ever more workers, income volatility — and all the accompanying financial and psychological stresses — is rising sharply in the United States.
Tens of millions of working Americans are either independent contractors, work part time, or are self-employed. “Payday” is becoming as anachronistic as the paper paycheck. This would not be such a problem if these workers were in the highly paid “gig economy” or had substantial savings.
But they aren’t, and they don’t:
They earn roughly $10 per hour and are scheduled for six hours of work one week and 45 another. They are among the 62 percent of Americans with less than $1,000 in savings. A higher minimum wage, an expanded Earned Income Tax Credit, improved retirement and “rainy day” savings plans may help, but none really addresses the problem.
The U.S. Financial Diaries project found that low- and moderate-income households had average income swings of more than 25 percent during at least five months of the year. One month, you can pay the rent and put food on the table; the next, you fall behind on your bills, borrow money, and try to skimp on an already skimpy budget.
Benefits unresponsive to shifts
Zenaida Torres, a 48-year-old single mother in East Los Angeles, still has irregular hours after working at the same restaurant for more than 20 years. “They keep raising prices, while I still make the same wage and rarely know when I’ll work or how much I’ll make each week,” she said.
Why is this happening? More than 40 percent of workers experiencing sharp swings in income blame irregular work schedules, with part-time workers especially hard hit.
What’s more, public benefits like food stamps, child care assistance, and Temporary Assistance for Needy Families typically are unresponsive to short-term income shifts. Unemployment insurance also was designed for yesterday’s workforce. Even the Earned Income Tax Credit, a successful antipoverty policy, contributes to income swings by making a once-a-year lump-sum payment for eligible tax filers, rather than spreading benefits across the calendar.
Moreover, dramatic shifts in income and spending rarely match up. Unexpected events — from illness to broken cars to sudden price increases — lead to huge expense spikes that people without a steady income or savings cannot manage.
Income volatility also increases the incidence of depression and psychological stress among low-income families, according to studies funded by the National Institutes of Health. The effects can cascade onto children, who are more likely to have behavioral problems and poorer school outcomes.
Consequences of volatile incomes deserve much more attention, as an Aspen Institute report indicates. Ideas to prevent and mitigate destabilizing income swings are emerging that involve at least three key actors — employers, government and the financial sector (and, maybe, families and friends).
Predictable scheduling, with the requirement that employers report the actual hours that employees work, and providing stable employment with decent wages and benefits could reduce volatility. San Francisco’s fair scheduling ordinance requires employers to pay double-time for certain work requested with less than 24 hours’ notice, and a similar law is being considered in Seattle. Financial-services providers could develop short-term, small-dollar, low-interest loans. They could help employers pay workers more frequently. Credit-system reform would enable many people currently blacklisted by credit-ratings agencies to become eligible for loans. And fancy “fintech” apps can help households better manage cash flow.
Public safety-net benefits, designed for a mid-20th century nation, need to be rethought to meet the needs of today’s workers and families. Progressive policy organizations like the Center for American Progress have called for unemployment insurance reform so that temporary and part-time workers can claim partial benefits and workers who quit jobs because of unreasonable scheduling can be eligible for unemployment insurance. President Obama proposed partial wage insurance to reduce income fluctuations for workers who have had to take lower-wage jobs — a problem familiar among many middle-age workers. The idea has some bipartisan support.
‘We can’t save anything’
The government also could pay Earned Income Tax Credit benefits several times a year, instead of just after tax day, as well as defer a portion of the tax credit in exchange for matching funds for emergency savings. Other tax incentives and savings vehicles like the new myRA accounts could be expanded or devised. Government could create “baby bond” or child savings accounts, as San Francisco’s K2C program has done.
Working as a banquet server in Philadelphia, sometimes 18 hours a week, other weeks for 25 hours at $10 per hour, 50-year-old Andre Butler struggles with knowing whether he will have enough to have “a fighting chance to survive.” Like millions of others with volatile incomes, he said: “We can’t save anything. We just need to know if we have enough to spend each week.”
This article originally appeared in The San Francisco Chronicle.
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