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What do bankers and care home workers have in common? They are both more likely than your average employee to have volatile pay packets that gyrate over the course of a year.
A newly available UK data set, which comes from HM Revenue & Customs payroll records on more than 250,000 working-age people between 2014 and 2019, has raised the lid on a hitherto hidden aspect of the world of work: the stability — or otherwise — of people’s pay from one month to the next.
Unpredictable shifts are a well-known problem for people on zero-hours contracts, but this group only accounts for 3.3 per cent of those in employment. Analysis of the new payroll data by the Resolution Foundation think-tank shows that 14 per cent of continuously employed workers experienced four or more months in a year where their earnings deviated from their monthly average by 25 per cent or more. In other words, volatile pay is surprisingly prevalent in the British economy.
The phenomenon is most common at the bottom and top of the wage ladder, accounting for 30 per cent of people in the bottom pay decile and 18 per cent of those in the top.
This is a useful reminder not to conflate “instability” with “insecurity”, nor to assume it is necessarily a problem. We can safely assume that investment bankers can cope with the ups and downs that come from bonuses and so forth, for example.
That said, it is a concern that volatile pay is most prevalent among the lowest-paid workers, who are the least likely to be able to build up savings to cushion the shocks.
Nest Insight, the research arm of the UK state-backed pension fund, tracked 51 low-and-moderate income households in England and Scotland, which experienced on average a little over £500 in volatility each month. The research found that people in this position were vigilant and ingenious money-managers. They developed all sorts of coping mechanisms, from informal circles of friends and family who would supply short-term loans to one another, to moving money between multiple accounts to ringfence and pay for bills.
But Sope Otulana, Nest Insight’s head of research, told an event hosted by the Resolution Foundation, at which I also spoke, that the sheer effort and stress was wearing people out. One couple in the study, who both had volatile incomes, made 170 transactions each month on average just between themselves, in an attempt to keep all the plates spinning.
There are two ways to approach a problem such as this: tackle the root cause, or help people cope with the effects. On the former, the government is pushing through legislation to make employers give low-paid workers a right to a contract that reflects their regular hours, and compensate them for cancelling shifts last-minute.
The advantage is that this will tackle not just zero-hours contracts, but also short-hours contracts, which only guarantee a bare minimum. The disadvantage is that it will be fiendishly complicated, and employers don’t like it. I have some sympathy for businesses, which have also been hit with higher taxes. But the new data underscores the need to rebalance some of the risk of fluctuations in customer demand from the shoulders of individual low-paid workers on to the books of employers.
As for helping people cope with volatile pay, wouldn’t it be great if this was something the government safety net could do? Indeed, this was the initial intention of universal credit, which replaced six means-tested benefits and tax credits with a single household payment. It is paid monthly in arrears and is meant to respond swiftly to changes in income, earnings and circumstances. Before it was rolled out, I remember speaking to a farmer who hoped he would be able to recruit more British workers because UC would insulate them from the ups and downs of being paid by the piece for picking fruit.
But if anything, it can have the opposite effect: people with unstable pay often find that UC exacerbates the problem. This is partly because of one-size-fits-all design flaws such as assessing income by the month, when many low-paid workers are paid by the week which means they have four pay packets in some months and five in others.
The good news is that design flaws can be tweaked. Unlike many policy ideas, which often come with huge price tags, some technical changes here, such as converting non-monthly earnings into a monthly equivalent, could make a positive difference to people’s lives.
Volatile pay isn’t always a problem, but in the places where it is, the answers are in reach.
