We live in an economy increasingly dominated by just-in-time workers, and the swings can be wrenching. Think of the hourly worker whose hours are slashed when business slows down, the parent who gets hit with an unexpected hospital bill, or the Uber driver who has a slow week. Think of all of the "independent contractors" who have no sick leave, no health insurance and no job security. Income volatility also affects millions of full-time employees, from salespeople who work on commission to factory workers who get laid off during slow periods.
According to an Urban Institute report, roughly a quarter of American families suffer a major disruption to their income each year. Nearly one in five of those families suffer an income drop of 50 percent or more. Volatility is especially traumatic for low-wage workers. And according to studies by the Aspen Institute, about half of low-wage workers are subject to precarious scheduling: they get little advance notice of changes in shifts or the number of hours they will work. For people living paycheck to paycheck, even short swings can cause long-lasting disruptions.
I saw this stress firsthand last summer when the city of Columbia hosted a conference on income volatility in coordination with the Aspen Institute's Financial Security Program and LendUp, a socially responsible financial-services firm.
We brought together elected officials, local business leaders, community advocates and policy experts. But we also heard from residents. "Stress is at the top of the list," one mother recounted. "You can't even think through in a rational way to work things out because you don't have the energy or focus."
"I can't even afford to get sick," said a resident working his way through college. "I had to quit going to school just so I could afford to pay rent."
One young mother recounted how she got fired after trying to care for her sick child. "They didn't want to hear the excuse," she said. Another mother with a sick child said she was forced to take out a high-cost "title loan" secured by her car. "I am still paying it off,'' she said. "I think I'm going to give the car back."
What can we do? We can't erase income volatility, but we can tame its impact. This will require bold thinking and collaboration across all sectors: elected officials, the business community, the financial-services industry, community advocates, nonprofit leaders and our own public employees.
As the mayor of Columbia, I oversee a municipal enterprise that employs more than 2,000 people. To that end, we are exploring a range of new strategies that could serve as a model for other employers. One simple idea: offer employees training in money management during work hours. There are a number of useful tools to help people prepare for volatility, but employees are often too busy or tired to think about those issues after work.
We also are looking at a pilot program to spur savings and homeownership among city employees. The plan is to offer "lunch and learn" seminars on a wide range of topics, from budgeting to credit management, and to link that with financial incentives for saving and support for down payments on homes purchased in targeted areas.
Employers need to think creatively about ways they can improve financial stability. Something as easy as switching from biweekly to weekly paychecks can help. But why stop there? Perhaps it's possible to smooth the monthly income of people who earn uneven but predictable amounts of overtime pay. If electricity customers can average out their bills over the year, why couldn't employees average out their overtime? Employers could also give their workers more advance notice about changes to their schedules or the number of hours they can expect. New York City recently enacted a law that requires exactly that.
Financial-services companies can help too. As Sasha Orloff, co-founder and CEO of LendUp, has noted, today's financial-services industry doesn't serve the needs of more than half of Americans, those who don't have access to things like debit or credit cards. Financial-services companies have a huge opportunity to innovate on behalf of these consumers, and some are already working on new ideas. Among them: safer alternatives to "payday" loans.
Government also should do more to adapt safety-net programs to the needs of today's workforce. Unemployment insurance helps only about one in five people who lose their jobs, and it does absolutely nothing for people whose hours are cut back. The federal Earned Income Tax Credit provides thousands of dollars to low-income working families -- but only once a year.
Neither the just-in-time labor economy nor the other causes of income volatility are likely to fade anytime soon. The good news is that creative solutions are possible, but they require bold thinking on all sides.