American Workers Are Riding the Income Roller Coaster

Uneven and unpredictable paychecks are on the rise for American workers. Income volatility doesn’t just make it harder to plan; it makes every unexpected expense a potential crisis.

Unpredictable income is especially rough on low-income workers, with nearly half of people making under $25,000 dealing with unpredictable paychecks. (Kali9 / Getty Images)

From social media personal finance influencers (“finfluencers”) to budgeting book guides, there’s been a recent explosion in popular money advice geared toward ordinary people. While the details vary, the basic blueprint is the same: budget carefully, build emergency savings, and plan ahead.

But there’s one common factor that makes following the blueprint nearly impossible: volatile income. It’s hard to budget when you don’t know whether next month’s paycheck will cover your basic expenses, let alone leave anything left to save.

Millions of Americans work hard but still struggle to make ends meet each month because their income bounces unpredictably up and down. That’s the takeaway from a new study by Julie Yixia Cai and Emma Curchin, researchers from the Center for Economic and Policy Research, a progressive Washington think tank. Their research reveals that having a volatile income undermines financial security for workers across all income levels.

Yixia Cai and Curchin reviewed data on the monthly incomes, costs, and debts of people of different races and annual income levels and from across the country from 2018 to 2022 to get a picture of how “economic volatility,” or a reliance on an income that goes up and down from one month to the next, aligned with other measures of economic precarity. While some racial and geographic groups have fared differently in the wake of the COVID-19 pandemic, the study found that volatility is consistently detrimental to just about everyone — even people with incomes that put them well above the poverty line.

“Volatility, in and of itself, is a problem for workers of all incomes,” the pair wrote.

Income Volatility, Meet Life Volatility

Unpredictable income from month to month isn’t just a low-wage problem — it creates stress and financial headaches for workers at all income levels. But it’s especially rough on low-income workers, with nearly half of people making under $25,000 dealing with unpredictable paychecks, compared to about a quarter of those making six figures.

Volatility of income is an understudied problem given how serious its consequences can be. According to the study, people with volatile incomes were 3 percent more likely to have unsecured debt (meaning debt that isn’t backed with collateral) and 7 percent more likely to have difficulty affording health care — both financial problems that can be stressful to live with and that can get worse over time.

Income volatility is especially common among groups that are more likely to experience other forms of economic hardship. Within the sampled group, about 38 percent of Hispanic workers reported experiencing volatility — around 10 percent more than the proportion of white workers. Black workers had a similar rate of instability as Hispanic workers, but while the proportion of Hispanic workers experiencing instability fell after the pandemic, it was little changed for black workers.

Other factors that correlated strongly with income volatility were having only attained a high school education or GED, and residency in certain Southern states. Slightly more than a third of all workers in Texas, Arkansas, Oklahoma, and Louisiana reported income volatility before the pandemic and during the recovery.

The pattern is painfully clear: the workers facing the most unpredictable incomes are often the least protected when life throws its inevitable curveballs. They’re more likely to lack health insurance if they get sick, have no savings cushion when the car breaks down, and have no family wealth to fall back on in emergencies. Income volatility doesn’t just make it harder to plan — it compounds the unpredictability of life in general, making every unexpected expense a potential crisis.

The Pandemic and Volatility

A key focus area for Yixia Cai and Curchin was how the much-hyped jobs economy in the first two years of the pandemic recovery affected workers’ income stability. On the whole, income volatility didn’t fluctuate substantially for most workers between the two years before the pandemic and two years after. But there was a big exception: the service sector. From 2021 to 2022, almost half of hospitality and leisure workers reported volatile incomes — a slight but noticeable increase over the 2018 to 2020 period.

The service sector is particularly noteworthy at this time, as those industries were among the few anywhere in the US economy that were hiring in the early days of the pandemic. Fast food workers found themselves reclassified as “essential workers” as fast food restaurants enjoyed a surge in traffic through their drive-thru lanes. The gig economy also took off: people who had been recently laid off from (often more reliable) jobs and parents looking for evening jobs after they minded their kids in the day turned to delivery services, like DoorDash and Instacart, for work just as those companies saw their customers soar.

Throughout 2019, leisure and hospitality hires accounted for an average of 19 percent of all non-farm hires in the US per month, according to data from the US Bureau of Labor Statistics. But in June 2020, hospitality and leisure accounted for a record 27 percent of hires in the country. (Since August 2020, that figure has stood at around 18 percent.)

The surge in service sector jobs during the pandemic had a hidden cost: it pushed more workers into industries known for erratic schedules and unreliable hours. As Americans flow into these positions, income volatility becomes an increasingly common feature of working-class life.

Stable Schedules for Stable Incomes

For many workers, especially during the worst days of the pandemic, income volatility is a necessary consequence of a trait they want in a job — namely, flexibility. But plenty of workers desiring steady jobs have to get by not knowing how many hours they’ll work in a given week or month, and how much money they’ll have for it.

As Yixia Cai and Curchin note, the problems associated with income volatility may largely come down to an inability to plan. Not knowing how much money one can expect next month means people save less, and that makes them rely on uncollateralized debt, like credit card debt, to cover basic expenses.

While individuals struggle to make it work in the system, it is possible to improve the system itself. In 2014, San Francisco started the trend of so-called “predictive scheduling laws,” which require employers to give workers schedules in advance and take workers’ input into account when planning their time on the job. These laws have already taken effect in Seattle, New York City, Philadelphia, Chicago, Los Angeles, and elsewhere. Last year, Senator Elizabeth Warren and Congresswoman Rosa DeLauro reintroduced the Schedules That Work Act to make predictive scheduling a federal law.

A national guarantee is a good idea. While only one state, Oregon, has passed a statewide predictive scheduling law, eleven states in the South and Midwest have moved in the opposite direction, passing legislation that bars state or local governments from regulating employee scheduling. Bringing some stability to workers’ incomes will require legislation that puts the right of workers to know their schedules in advance above the right of employers to schedule them however they want.