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The Issues | Income Volatility

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Susan Lambert | University of Chicago

“[Volatility] creates enormous economic insecurity that creates stress and makes it hard to budget and plan for the future.”

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Interactive Charts

● Summary

Between June 5 and 9, 2016, the Aspen Institute Financial Security Program commissioned the research firm Greenwald & Associates to administer an online poll of a representative sample of Americans. The sample consisted of 1,250 U.S. adults (age 18+) selected based on U.S. Census data for age, ethnicity, gender, region, and income.

● Survey Results

INCOME VOLATILITY CONSUMER SURVEY

How important is it for EMPLOYERS to do more to ensure workers have steady and predictable wages?

    According to an Aspen Institute Financial Security Program study.
    Data Collection: Research Now Omnibus; June 5-9, 2016
    Margin of Error: +/- 2.8% (n=1,250)

    INCOME VOLATILITY CONSUMER SURVEY

    How important is it for THE GOVERNMENT to do more to ensure workers have steady and predictable wages?

      According to an Aspen Institute Financial Security Program study.
      Data Collection: Research Now Omnibus; June 5-9, 2016
      Margin of Error: +/- 2.8% (n=1,250)

      INCOME VOLATILITY CONSUMER SURVEY

      How harmful is rising income volatility to your community or to the country as a whole?

        According to an Aspen Institute Financial Security Program study.
        Data Collection: Research Now Omnibus; June 5-9, 2016
        Margin of Error: +/- 2.8% (n=1,250)

        Infographics

        ● Summary

        For a distinct and visual retelling of the income volatility story – from some of the most cutting-edge and authoritative sources in the field – please scroll through the graphs and infographics that follow.

        ● Gallery

        U.S. Federal Reserve System<br><br>The Federal Reserve’s 2015 Survey of Household Economics and Decisionmaking also asked about the reasons for the swings. Over 40% of those experiencing volatility blamed an irregular work schedule.<br><br>Source: Board of Governors of the Federal Reserve System. “Report on the Economic Well-Being of U.S. Households in 2015.” The Federal Reserve, 2016.
        JP Morgan Trust Institute<br><br>The JPMorgan Chase Institute uses proprietary data from its bank and credit card customer base to shed light on Americans’ financial lives. As this infographic shows, between 2012 and 2014, four in ten individuals saw more than a 30% month-to-month fluctuation in income. And consumption volatility was found to be higher than income volatility by between 5% and 30%.<br><br>Source: Farrell, Diana, and Fiona Greig. “Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals.” JP Morgan Chase Institute, 2015.
        Karen Dynan, Douglas Elmendorf, and Daniel Sichel published groundbreaking research in 2012 showing that year-to-year income changes for households had been growing more severe over the last four decades, despite a fairly steady macroeconomic environment during that time. Specifically – and as the graphs above show – they found that volatility in household income, as measured by the standard deviation of two-year percent changes in Panel Study of Income Dynamics-reported income, increased by 29% between 1971 and 2008.<br><br>Source: Dynan, Karen, Douglas Elmendorf, and Daniel Sichel. “The Evolution of Household Income Volatility.” The BE Journal of Economic Analysis & Policy 12, no. 2 (2012).
        AspenEPIC<br><br>While no strong consensus exists on which demographic groups are most affected by volatility, one careful analysis of the Survey on Income and Program Participation from 2009 found that the monthly income of low-income families was 84% more volatile than that of those above the poverty line. The same research also identified other groups who tend to experience above-average monthly income volatility: those without a high school diploma, renters, single parents, Hispanics, and non-Hispanic blacks.
        Pew Charitable Trusts<br><br>In contrast to Dynan, Elmendorf, and Sichel’s 2012 findings, the Pew Charitable Trusts found the share of households experiencing an annual gain or loss of income of more than 25% – though quite high at more than four in ten of all Americans – remained stable between 1979 and 2011. Though both sets of researchers were using the Panel Study of Income Dynamics as their data source, their measure of volatility differed, highlighting the determinative role methodology can play in income volatility research.<br><br>Source: The Pew Charitable Trusts. “The Precarious State of Family Balance Sheets.” The Pew Charitable Trusts, 2015.
        U.S. Federal Reserve System<br><br>The Federal Reserve re-asked its 2013 income volatility question again in 2015, with similar results. Thirty-two percent of respondents reported at least some substantial swings.<br><br>Source: Board of Governors of the Federal Reserve System. “Report on the Economic Well-Being of U.S. Households in 2015.” The Federal Reserve, 2016.
        AspenEPIC Consumer Survey
        Pew Charitable Trusts<br><br>Not only did Pew find that financial shocks are quite prevalent in the U.S., but the Survey of American Family Finances also found that these shocks cause serious hardship for families. This was especially true of young and low-income households. Of the respondents who had suffered one of these so-called “destabilizing” shocks, nearly 50 percent still had not recovered at the time of the survey, which for most was at least six months later.<br><br>Source: The Pew Charitable Trusts. “The Role of Emergency Savings in Family Financial Security: How Do Families Cope with Financial Shocks?” The Pew Charitable Trusts, 2015.
        JP Morgan Trust Institute<br><br>Income volatility seems to be related to other trends in the economy, like the rise of the contingent workforce. The JP Morgan Chase Institute analyzed the segment of this workforce servicing the online platform economy and found that workers often use labor platforms like Uber and TaskRabbit to make up for income losses in other areas, thus mitigating volatility.<br><br>Source: Farrell, Diana, and Fiona Greig. “Paychecks, Paydays, and the Online Platform Economy.” JP Morgan Chase Institute, 2016.
        U.S. Federal Reserve System<br><br>In 2015, the Federal Reserve added a question to the Survey of Household Economics and Decisionmaking on expense volatility. The findings, which were published in May, 2016, show that more Americans experience some expense volatility (43.4%) than income volatility (32%).<br><br>Source: Board of Governors of the Federal Reserve System. “Report on the Economic Well-Being of U.S. Households in 2015.” The Federal Reserve, 2016.
        Pew Charitable Trusts<br><br>Pew Charitable Trusts’ Survey of American Family Finances paints a picture of financial insecurity in the U.S. In 2014, Sixty percent of the nearly 8,000 respondents reported experiencing a financial shock – which Pew defines as either an expense spike or an income drop – at some point in the past 12 months. The most commonly reported financial shock was triggered by a major car repair.<br><br>Source: The Pew Charitable Trusts. “The Role of Emergency Savings in Family Financial Security: How Do Families Cope with Financial Shocks?” The Pew Charitable Trusts, 2015.
        AspenEPIC Consumer Survey 2
        U.S. Federal Reserve System<br><br>The Federal Reserve’s 2013 Survey of Household Economics and Decisionmaking, a first-of-its-kind nationally representative survey, found that 21% of respondents experienced some unusually high or low income months, and an additional 10% reported their income often varies “quite a bit” from one month to the next.<br><br>Source: Board of Governors of the Federal Reserve System. “Report on the Economic Well-Being of U.S. Households in 2013.” The Federal Reserve, 2014.
        U.S. Financial Diaries<br><br>Income volatility has many different sources. Though most households in the U.S. Financial Diaries sample experienced volatility at some point in the research year, the causes of that volatility varied from household to household in both its causes and its timing.<br><br>Visit www.usfinancialdiaries.org for more.
        JP Morgan Trust Institute<br><br>In a separate report, the JP Morgan Chase Institute uncovered other details about monthly income volatility in the U.S., including who it affects most severely (those who are young, low-income, and live in the West) and what drives it (labor earnings, especially variation in pay within jobs).<br><br>Source: Farrell, Diana, and Fiona Greig. “Paychecks, Paydays, and the Online Platform Economy.” JP Morgan Chase Institute, 2016.
        U.S. Financial Diaries<br><br>Many assume that having a steady job protects people from income volatility. But research from the U.S. Financial Diaries Project shows that a steady job is not a guarantee of steady income. An analysis of the individuals with regular jobs in the Kentucky sample showed that two-thirds experienced significant spikes and dips.<br><br>Visit www.usfinancialdiaries.org for more.
        U.S. Federal Reserve System<br><br>The 2015 Survey of Household Economics and Decisionmaking also looked at the consequences of volatility, asking those who reported experiencing income or expense volatility over the last year if those fluctuations led to struggles paying bills. Over half of those making less than $40,000 said yes.<br><br>Source: Board of Governors of the Federal Reserve System. “Report on the Economic Well-Being of U.S. Households in 2015.” The Federal Reserve, 2016.
        U.S. Financial Diaries<br><br>Annual data can mask the incidence of considerable month-to-month variation. The U.S. Financial Diaries took a more granular approach, tracking the day-to-day income and expenses of 235 low- and moderate-income households over the course of a year.<br><br>Visit www.usfinancialdiaries.org for more.
        AspenEPIC consumer survey 3

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