October 23, 2024
Many Americans’ incomes vary from month to month. The sources that cause income volatility are hard to predict, such as involuntary departure from a job1, in-job irregular work schedules or unstable work hours2,3 and inconsistent receipt of government benefits4. Workers who rely exclusively on gig work or have unexpected illnesses that prevent them from working may also encounter income instability.
Annual income numbers do not capture the fact that income may fluctuate widely from month to month, or even quarter to quarter, over the course of the year. Families that experience year-to-year income gains and losses experience diminished financial well-being and have less savings than households with stable income5. The economic state of those reporting income variation within a year is even more precarious, with substantial subgroup differences6,7. And household consumption is highly sensitive to changes in month-to-month income, especially for those at the bottom of the income distribution8,9.
Volatility in workers’ incomes could lead them to make different financial planning decisions, such as not saving as much10. This might presumably lead to taking on unsecured debt, which is unattached to how much collateral (aka property) a person has. In the United States, many low- income and middle class people experiencing job loss have sudden expenses that they are unable to pay, such as non-discretionary expenditures like out-of-pocket medical expenses11. For service workers in particular, schedule unpredictability is an important predictor of having high-cost debt from sources like payday loans, pawn shop loans, auto-title loans, overdrafts, and problematic credit card debt12.
Despite the declining uninsured rate across the country (over 90 percent of the US population13 has some form of health insurance in 2023, with over 20 million opting into the Affordable Care Act Marketplace plan in 202414), affordable health care access is out of reach for many because it is often tied to employment status. High medical bills can create a financial burden, and income instability makes it harder to pay those bills, which can drive people into debt15. Prior work using US data has showed the negative role that inconsistent income and job churning may play on workers’ health per se16,17,18.
However, it is crucial to acknowledge that there is still much we need to learn empirically about the relationship between income instability, a worker’s health care hardship, and their potential unsecured debt burden. While there is promising literature in the general area of research of income instability, these papers do not directly address the relationship between income instability and unsecured debt. Most literature that exists is from before the pandemic. There is not a large pool of research examining the periods directly before and after the onset of the pandemic, and how this experience affected different groups of workers and their economic well-being.
In this report, we use pooled data from the Survey of Household Economics and Decisionmaking 2018-2022 with a measure of income volatility that is based upon respondents’ own assessment of how their month-to-month income varied19. Note that researchers applied other approaches to measure income instability using household panel data, such as the magnitude and directions of frequent income swings20,21,22.
We define health care affordability as respondents who report they needed but could not afford to seek one of the following: a prescription, a doctor or specialist visit, dental care, or mental health care. For our examination of debt, we particularly look at “unsecured debt.” This type of debt is different from “secured debt” such as mortgages or car loans, which require the borrower to prove they have sufficient collateral or savings. We include two common forms of unsecured debt: medical bills and credit card debt23. Unsecured debt can be problematic because it tends to carry much higher interest rates. Given that it is riskier for the lender, default rates tend to be high, industries like payday lenders are unregulated, and vital medical care can saddle a person with thousands of dollars’ worth of bills. We recognize that, in some situations, both secured and unsecured debt can be beneficial tools towards building stability and wealth for many Americans; however, unsecured indebtedness may jeopardize long-term economic sustainability for those confronting labor market churn and, thus, income swings.
The subsequent sections present the demographic profile of those experiencing income instability. We then present regression-adjusted results unpacking a worker’s chance of having medical care hardship and bearing unsecured debt when facing unstable income. As a supplemental analysis, we descriptively show the income instability situation before and after the pandemic by groups according to a worker’s region, industry, race and ethnicity, education attainment, and income levels. We end with a brief discussion of potential policy solutions.
Table 1
Table 1 reports the demographic breakdown of workers with stable incomes and those experiencing income instability. Our sample includes adults 18 or over who held a job at the time of survey. This sample selection may underestimate the prevalence of income instability, since workers with intermittent employment status and subsequent variable income would not be captured.
There are a few key highlights of this breakdown. We see that while 26 percent of the total sample cannot afford their medical care, 35 percent of those with income instability experience unaffordability. While 88 percent of the sample has health insurance, just 80 percent of those with income instability do. Nearly half of the sample reports having any credit card debt they cannot pay off in the next cycle, or any medical debt. Those with inconsistent income are slightly more likely to fall into this category. Hispanics disproportionately have income instability; they are 17 percent of the sample but 21 percent of the group with unstable incomes. Seven percent of the sample is young workers aged 18-24, but this group comprises 11 percent of those with income instability.
To understand how variable income experience relates to workers’ outcomes of interest, we show in Figure 1 the likelihood of having healthcare hardship or unsecured debt for those with income volatility relative to their counterparts who are stable economically and have similar demographic makeup. We present both unadjusted and adjusted results from the linear probability models (in Appendix Table A1)
Figure 1
Consistent with the pattern described above, our results suggest that income volatility is linked to someone’s ability to afford medical care. On average, those who report short-term income variability appear to have a 7.3 percentage point increase in difficulty affording medical care relative to those with stable income (see Figure 1).
Experiencing income instability is associated with a 3.1 percentage point increase in the rate of having unsecured debt. Put simply, after considering workers’ demographic factors, job-related characteristics, and state of residence, the likelihood that a worker owes unsecured debt increases if they are experiencing income volatility24.
As a supplemental analysis, Table 2 (comprising five domain tabs) shows the share of those reporting month-to-month income instability before and after the pandemic. It is broken down according to a worker’s region of residence, industry, race and ethnicity, education level, and income gradient. Below we discuss these results25.
Table 2
Region of Residence
Across most regions, the share of workers with variable income slightly decreases in the pandemic recovery, relative to the average of 2018 and 2019. The West-South Central region still sees the highest percentage of its residents reporting income instability between 2021 and 2022. That is, slightly over one-third of workers residing in Arkansas, Louisiana, Oklahoma, and Texas experienced short-term income instability both in the pre-pandemic and pandemic recovery period. There is not wide variation between the different regions. A noticeable change from year to year was seen in New England (Maine, Vermont, New Hampshire, Massachusetts, Connecticut, and Rhode Island), where the share of those experiencing income volatility declined by roughly 12 percent from pre-pandemic to the pandemic recovery period. However, places in the South-Atlantic region (such as Maryland, West Virginia, Georgia, and Florida) saw an approximately 5 percent increase in workers facing income instability.
Industry
Due to the strong labor market during the pandemic economic recovery – as people gradually were getting back jobs, especially those of higher quality – one would expect to see a decline in income volatility. In fact, the share of workers experiencing income volatility did not fluctuate much before and after the onset of the pandemic, except for those working in service sectors.
Income volatility month to month varies widely across different industries. The industries with the highest shares of workers experiencing unstable incomes are leisure and hospitality. Over four out of nine workers in these industries had unstable incomes between 2021 and 2022, a slight increase from its pre-pandemic level. The other two sectors that see an increase in variable income during the recovery phase are wholesale and retail and education and health care service. Compared to pre-pandemic levels, they had about a 2 percent and 5 percent increase, respectively, in those reporting inconsistent income during the recent recovery.
Race and Ethnicity
Across racial and ethnic groups, Hispanic people had the highest percentage of income volatility; approximately two-fifths indicated their income varied month to month in both time periods. This is roughly 10 percentage points higher than the share of white people experiencing income instability.
The most notable change from the pre-pandemic to pandemic-recovery period was for Black people and those who identified as Asian American, Pacific Islander (AAPI) or multi-racial people. The percentage of Black workers experiencing income volatility rose by about 1.7 percentage points (or about 5 percent), while the percentage of Hispanic workers declined by 2.3 percentage points – indicating an improvement in this group’s financial stability.
Education and Income Levels
Those without a college degree report a higher inconsistent income situation relative to the national average during both time windows examined. In particular, the share of workers without a high school degree facing income fluctuation increased by around 4 percent in the recovery phase, at nearly 50 percent. For those with a high school degree or GED, it seems that there was actually a decline in the percentage of workers that experienced income fluctuation; roughly 12 percent less workers had unstable incomes during the pandemic recovery period compared to the pre-pandemic period.
Across the time periods we examined, the share of workers with a pre-tax annual family income under $75,000 reporting inconsistent income remains relatively stable. However, a staggering disparity across income gradients exist. Nearly half of workers at the bottom income group (defined as pre-tax income less than $25,000) reported income swings. Those with annual family income at $100,000 or above have a rate of income instability that is roughly half of the lowest income group.
Income volatility is common across demographic groups, but is more acute for workers of color, those living in the Southern states, and those working in the low-wage services industry. Our results also indicate that there is a significant link between income volatility and a worker’s likelihood to owe unsecured debt, as well as the ability to afford healthcare. This may have practical implications for both employers and policymakers.
Half of the income volatility experienced by American workers stems from variations in income from the same job26. Employer practices like irregular work schedules and short notice or “just in time” scheduling translate to unstable and unpredictable incomes for millions of workers27.
As previously documented, an overwhelming majority of low-wage workers face unpredictable work schedules, and thus income variability. And many of them do not hold a college degree28. For those concerned with workers' economic insecurity, legislation that addresses workplace stability, and thus workers’ financial stability, such as the Schedules That Work Act (H.R.5563 / S.2851), should be one of the policy prescriptions. The bill would be a vital step towards curbing the harmful scheduling practices that cause workers’ instability. A particularly important part is the requirement that employers in the industries with the most pervasive income instability provide advance notice to employees of work schedules, predictability pay for schedule changes made without the required notice, and split shift pay. There are additional fair workweek laws which have been enacted across certain places and jurisdictions that require employers to offer predictable schedules, but nothing similar has materialized on a federal level29,30.
Our findings around unsecured debt and income volatility underscore the need for urgent federal action to address the high medical and credit card debt of millions of Americans. The No Surprises Act, which went into effect in January 2022, was a major step to protect patients from being charged surprise, unexpected medical bills by providers that are not in their insurance networks. The Biden-Harris administration recently identified medical debt as a priority31, and the Consumer Financial Protection Bureau announced regulations to prohibit medical debt from appearing on consumer credit reports32.
Any efforts to protect Americans from unsecured debt should recognize that healthcare access is often tied to income stability. Many low-income workers, especially those in precarious jobs, struggle to maintain continuous healthcare coverage throughout the year; their hours and income fluctuate month to month, and employers are often reluctant to pay for health insurance and other benefits. Qualifying for Medicaid is typically based on one’s income level, which means many of these workers go in and out of coverage – especially in states without the Affordable Care Act’s Medicaid expansion33,34. Even insured, intermittent access to health care may lead to accumulating medical debt. It is vital to ensure consistent hours for workers in precarious work situations, so they can avoid these coverage gaps and secure stable access to healthcare for themselves and their families.
The analytic data come from the Survey of Household Economics and Decisionmaking 2018-2022. We select respondents (aged 18 or older) who report holding a job last month at the time of survey. The main variable comes from the question “In the past 12 months, which one of the following best describes your (and/or your spouse's or partner's) income?”. Respondents are offered three choices. Respondents who select “Occasionally varies from month to month” or “Varies quite often from month to month” are coded as 1, and otherwise coded as 0.
We estimate linear probability models to understand whether there is a link between short-term income volatility and a worker’s unsecured debt as well as healthcare affordability. The outcomes of interest include (1) health care affordability and (2) unsecured debt.
To do so, we use two types of debt to capture unsecured debt a worker may owe: whether someone has credit card debt they are not able to pay in full at their next payment and/or they have medical debt from any care they or their family has received. If a respondent answers yes to any of these two, they are deemed as having unsecured debt. Constructing whether someone could afford health care use is based on the following questions: During the past 12 months, was there a time when you needed each of the following, but went without because you couldn't afford it?” The types of healthcare include prescription medicine, seeing a doctor or specialist, mental health care or counseling, and dental care.
We then provide supplemental descriptive analysis about average income instability before and after the pandemic according to a worker’s place of residence, industry, race or ethnicity, education attainment, and income level. The income level variable is informed by how much a respondent and/or their spouse received from all sources (before taxes and deductions) in the past 12 months.
Table A1
The authors thank John Schmitt and Dean Baker for the insightful feedback on the earlier draft.
