Impacts of income volatility should be wake up call for policy-makers

Posted on May 21, 2017 in Policy Context – Business – Close to 3.3 million Canadians watch their incomes fluctuate monthly by 25 per cent or more, new TD study says.
May 19, 2017.   By

Inequality. Disparity. Precarity.

There should be a separate mini-dictionary for the ways in which capitalism has disfavoured the many and how the world of work increasingly fails to deliver on what was thought to be the democratic compact: work hard, reap the rewards, build a secure future.

The TD Bank added “volatility” to the lexicon this week in the context of income volatility.

It’s a timely topic as we await recommended reforms to the province’s Employment Standards Act and the Labour Relations Act, the first review in more than a generation, as the government repeatedly reminds us, and one that is meant to improve security and opportunity for those made vulnerable by structural economic changes.

Volatility is not a new area of study, but let’s give the TD credit for shining a light on what it calls a pervasive and profound problem.

The issue is defined as readers would expect: Is one’s income consistent and is it stable? Often the answer, unsurprisingly, is “no.”

In a survey conducted for the bank by Ipsos Canada, close to 40 per cent of Canadians experience moderate to high income volatility.

Extrapolating from the survey’s national sample of 3,000 Canadians, the TD study concludes that approximately 3.3 million adult Canadians watch their monthly incomes fluctuate by 25 per cent or more.

A year-over-year 25-per-cent income swing has been the benchmark definition for other studies on income volatility.

This past March, the Pew Charitable Trusts in Washington released its report on family financial stability, building on an earlier finding that 43 per cent of American families experienced swings of more than a quarter of their income.

No wonder 25 per cent is seen as a reasonable baseline for volatility. But listen to this: The median household that suffered a loss saw its income decrease by 49 per cent year over year. That’s almost beyond comprehension. The Pew researchers deem the results “dramatic.”

They are that.

The main causes of income fluctuation noted in the TD report include ebbing and flowing work hours, self-employment and multiple sources of income.

In other words, the new world of work.

The main effects are obvious: financial stress, the inability to plan and save for emergencies let alone retirement, the relentless reality of falling further and further behind. Twice as many Canadians — 27 per cent — report that they are falling behind against those who feel they are making financial progress.

Groups of Canadians particularly affected include millennials, especially millennial women, the self-employed and the seasonally employed.

Implications arise not just for individuals and families whose incomes are negatively affected. Income gains are recorded as volatility too. The Pew study found that the typical household that had suffered an income loss had $1,550 (U.S.) squirreled away in savings while the typical household that had experienced an income gain had $3,000 saved.

An income shock — say, a significant car repair — could wipe out the savings of the volatile income household whether it had lost or gained in income. But the family with the stableincome outshot even those households that had gained in income by saving a total of $5,500.

Financial stability is hard to come by when an employee doesn’t know from day to day whether he’s needed for a work shift, or shows up for work and is dismissed for the day after two hours of labour, or is given just 24 hours notice of the next week’s work schedule.

It’s the employer who can fix these levels of uncertainty. Let’s rephrase that: Employers should be forced to eliminate these uncertainties.

Readers may recall the way in which New York Attorney General Eric Schneiderman pointed the finger at a number of high profile retailers, including David’s Tea, for their on-call practices last spring.

In December, Schneiderman announced that David’s Tea, Disney, Aeropostale and others agreed to cease the practice of having employees call in an hour or two before the start of shift to find out if they were working that day.

David’s Tea and others additionally agreed to provide work schedules at least a week in advance. How else to plan for daycare, or dental appointments, or life?

A decent $15 an hour minimum wage is part of the solution.

So long as it doesn’t mean having to survive on fewer hours. Giving employees increased control over the money flow is another idea whose time has come.

In the U.S. PayActiv is a payroll service that provides access to earned but unpaid wages between pay periods. Perhaps this does help cash-strapped workers avoid the clutches of payday lenders. It certainly makes the idea of one cheque every two weeks seem out of step with economic reality.

As with the Pew study, the TD report concludes that those Canadian workers experiencing the greatest income volatility are the poorest performers when it comes to planning and saving. That impacts financial health — and should be a wake up call for policy-makers.

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