The Issues | Income Volatility

What We Know

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Daniel Schneider | University of California, Berkeley

“My sense is that the constellation of irregular hours, unpredictable schedules, and involuntary part time work drive a substantial amount of week-to-week and month-to-month income volatility.”

INCOME VOLATILITY - A PRIMER

● Summary

Income volatility is an emerging, critical issue for understanding financial security today. American households seem to be facing increased instability and unpredictability in their financial lives. Despite the efforts of scores of researchers, there is no consensus on the extent of volatility and how it affects individual well-being, especially among vulnerable low- and moderate-income populations. For that reason, the Aspen Institute Financial Security Program (FSP) is devoting the inaugural year of its new knowledge-synthesis initiative, the Expanding Prosperity Impact Collaborative (EPIC), to income volatility. EPIC aims to be an evidence-based, neutral forum for gaining clarity about the nature of the problem, its evolution, its significance, and our options for responding.

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MANAGING THE SWINGS

● Summary

The Expanding Prosperity Impact Collaborative (EPIC), an initiative of the Aspen Institute’s Financial Security Program, will target a consequential consumer finance issue to explore in depth for a defined period of time. In its inaugural year, EPIC is focusing on income volatility. EPIC’s purpose is to synthesize insights to build a more accurate understanding of how income volatility impacts low- and moderate-income families and how best to combat the most destabilizing dimensions of the problem. The EPIC process includes identification and synthesis of data, convenings of cross-sector experts, surveys of a broader group of experts and leaders, and dissemination of issue briefs. EPIC’s look at income volatility will conclude with a set of concrete recommendations for moving forward.

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STABLE AND PREDICTABLE SCHEDULING AS ANTIDOTE TO INCOME VOLATILITY

● Summary

While research on month-to-month income volatility is still emerging, a number of indicators point to scheduling instability – fluctuations in hours worked – as one of the key drivers of this phenomenon:

  • Of those who self-reported volatile monthly incomes in a recent survey, 40% blamed an irregular work schedule for the swings.
  • An analysis of banking records found that, for nearly one in four jobs...

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TWO BIRDS, ONE STONE: USING HYBRID FINANCIAL PRODUCTS TO MANAGE INCOME VOLATILITY

● Summary

There is wide consensus that income volatility—particularly intra-year volatility—is a pervasive problem for American households. Estimates vary. For example, JP Morgan Chase Institute finds that 41% of consumers experience month-to-month fluctuations in earnings of more than 30%, while the Federal Reserve (SHED) finds 32% of households report experiencing occasional to frequent monthly variations.

The key challenge for families experiencing income volatility is how to maintain liquidity and avoid financial instability.

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PAYROLL INNOVATION

● Summary

This brief on payroll innovation is part of a series that explores highly promising solutions to income volatility. Our hope is that this brief will push financial service providers, employers, and governments to consider ways to update and improve how workers get paid, and in the process, give households a new tool for achieving financial stability.

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SHORTFALL SAVINGS

● Summary

EPIC has identified shortfall savings as a key tool in the toolbox for achieving financial stability. Without resources to tap into when in- come drops or expenses rise, families are left with few options for making ends meet. This brief explores the ways in which governments, for- and non-profit financial service providers, and employers can help low- and moderate-income households build savings for the short-term, which will help them smooth out the inevitable spikes and dips in their income and expenses.

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INCOME VOLATILITY IN THE SERVICE SECTOR

● Summary

This new EPIC research brief by Daniel Schneider (UC Berkeley) and Kristen Harknett (University of Pennsylvania) enhances our understanding of the connections between income swings and family outcomes for hourly retail workers.

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WAGE INSURANCE

● Summary

This brief focuses on wage insurance, a potentially high-impact opportunity to help families avoid the serious long-term consequences of job loss or reduced wages.

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REFORMING UNEMPLOYMENT INSURANCE TO SUPPORT INCOME STABILITY AND FINANCIAL SECURITY

● Summary

This brief reviews the current research on how income shocks associated with job displacement impact families’ financial security in the short- and long-term. It discusses the performance of current UI programs and a range of reform proposals. The brief also explores specific reforms that would enable UI programs to serve a broader base of workers and buffer more effectively against employment-related negative income shocks. It also considers the roles of key institutions – governments, employers, and financial services providers including insurers—in supporting UI reforms, and identifies specific opportunities for private-sector leadership.

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THE EXPERIENCE OF VOLATILITY IN LOW AND MODERATE-INCOME HOUSEHOLDS: RESULTS FROM A NATIONAL SURVEY

● Summary

This is the first in a series of briefs produced by a partnership between the Aspen Institute’s Expanding Prosperity Impact Collaborative (EPIC), Washington University’s Center for Social Development (CSD), and the Intuit Tax and Financial Center. It highlights new data on the prevalence of income and expense volatility in low- and moderate-income households. The second brief will focus on the downstream consequences of volatility and how it impacts financial behavior.

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MEMO: THE FUTURE OF INCOME VOLATILITY RESEARCH

● Summary

Since the Expanding Prosperity Impact Collaborative (EPIC) launched our investigation into income volatility in early 2016, much has been learned about volatility’s destabilizing effects on American families. Now that EPIC’s focus on income volatility is coming to a close, we wanted to recap some of the field’s most notable research achievements, as well as recommend what we see as important and needed opportunities for further work.

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INCOME VOLATILITY: WHY IT DESTABILIZES FAMILIES AND HOW PHILANTHROPY CAN MAKE A DIFFERENCE

● Summary

This paper will help grantmakers understand the enormous challenge income volatility presents in our country and will present an array of strategies for philanthropy to leverage both investments and leadership to empower families to protect themselves from volatility’s worst effects. Drawing on 18 months of research, convenings, expert surveys, and stakeholder engagement, this brief identifies the constellation of the most promising solutions that need champions, resources, and acceleration. Because of the complexity of income volatility, there is a unique role for philanthropy to deploy not only investments, but also to leverage its influence and convening power.

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RESPONSES TO AND REPERCUSSIONS FROM INCOME VOLATILITY IN LOW- AND MODERATE-INCOME HOUSEHOLDS: RESULTS FROM A NATIONAL SURVEY

● Summary

This is the second in a series of briefs produced by a partnership between the Aspen Institute’s Expanding Prosperity Impact Collaborative (EPIC), Washington University’s Center for Social Development (CSD), and the Intuit Tax and Financial Center. The first brief highlighted new data on the prevalence of income and expense volatility in low- and moderate-income households. This brief will focus on the potential consequences of volatility and how it relates to financial behavior.

🔗 READ THE BRIEF

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KEY READINGS

● In The News

● In The News

● Research

● Research

● Full Reading List

The Rising Instability of American Family Incomes, 1969-2004 Evidence from the Panel Study of Income Dynamics
By Jacob S. Hacker and Elisabeth Jacobs

Income Gains and Month-to-Month Income Volatility: Household evidence from the US Financial Diaries
By Anthony Hannagan and Jonathan Morduch

Debt and the Racial Wealth Gap
By Paul Kiel

The Income Rollercoaster: Rising Income Volatility and its Implications
By Karen Dynan

Income Volatility and its Effects on Children
By Pamela Morris, Lisa Gennetian and Heather Hill

Income Volatility and Food Assistance Programs
By Dean Jolliffe and Jim Ziliak

If America is Richer, Why are its Families So Much Less Secure? The Poor Have More Things Today -- Including Wild Income Swings How Just a Handful of Setbacks Sent the Ryans Tumbling Out of Prosperity
Los Angeles Times Series by Peter Gosselin

Unsteady Incomes Keep Millions Behind on Bills
By Patricia Cohen

U.S. Financial Diaries Issue Briefs
By Jonathan Morduch, Rachel Schneider, Timothy Ogden, Anthony Hannagan, and Julie Siwicki

The Precarious State of Family Balance Sheets
The Pew Charitable Trusts

The Role of Emergency Savings in Family Financial Security
The Pew Charitable Trusts

Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals
By Diana Farrell and Fiona Greig

Addressing Income Volatility of Low Income Populations
By Virginia Andersen, Sarah Austin, Joel Doucette, Ann Drazkowski, and Scott Wood

Low-Income Households and Income Volatility
By Marieka Klawitter and Colin Morgan-Cross

Monthly Household Income Volatility in the U.S., 1991/92 vs. 2002/03
By Neil Bania and Laura Leete

The Evolution of Household Income Volatility
By Karen Dynan, Douglas Elmendorf, and Daniel Sichel

Recent Trends in the Variability of Individual Earnings and Household Income
Congressional Budget Office

EPIC
INCOME VOLATILITY|CONSUMER DEBT

Income volatility is not a discrete, boutique problem. It's a new normal for American households.

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