Worker anxiety at 4.4 percent unemployment? It's about hidden volatility.

Even families well into the middle class are dealing more and more with unpredictable income streams, thanks to fundamental changes in the economy. That instability can make it difficult to save and get ahead.

 

Which would you rather have: a higher-paying job, or a more predictable one?

Taking a bird’s-eye view of upward mobility probably would lead to the first answer – more money is always a step up. But look beneath the surface, and the second is a deeper concern for a growing swath of Americans. Not knowing how much money is coming in every month, or even every week, can make it hard to cover everyday expenses and even harder to get a leg up on things like saving for retirement and paying for education.

For Kieran Ridge, who owns a business painting houses and commercial buildings in wealthy neighborhoods of Boston, income fluctuations are part of the job. Ridge Painting & Restoration has thrived since he started the business in 2009, so much so that Mr. Ridge’s wife recently left a six-figure job in management at Restoration Hardware to stay home with the couple’s two small children.

But his work is highly seasonal, and dipping into the family’s savings during slow winter months to get by isn’t out of the ordinary. “I earn three times as much during the busy season [from about April to November] as I do during the winter months,” he says. “Even then I have weeks where there are three checks coming in, and weeks where there are no checks at all. We just try to save when it’s busy and dip in when it’s slow.”

Those peaks and valleys, however, are no longer a problem solely for small-business owners, or even the very poor. Jonathan Morduch and Rachel Schneider discovered them, time and again, in the finances of families profiled for their book, “The Financial Diaries: How Americans Cope in a World of Financial Uncertainty,” released in April. Over the course of a year, Mr. Morduch, an economist at New York University, and Ms. Schneider, a financial services expert, headed up a team that tracked the cash flow of 235 low- and middle-income households. 

And even many of those with steady jobs, living in good neighborhoods, were on shaky ground. The typical family tracked during the project had more than five months during the year in which their income swung 25 percent higher, or lower, than the sum total of their income averaged out over 12 months. One couple in the book, Becky and Jeremy, make a solid middle-class income on the aggregate from Jeremy’s work repairing trucks on commission, but dip below the poverty line six months out of the year.

“The volatility was experienced not just at the bottom,” says Morduch. “It’s a bigger problem for the poor, but one we see well into the middle class.”

The Financial Diaries project tells a broader story about the economy. It’s one of heightened insecurity, driven by a confluence of factors: a broad shift in the job market, higher living costs, and employees taking on more of the financial risks traditionally borne by their employers in the form of things like retirement savings contributions and a higher proportion of income coming from tips and commission. “This is something you can’t see from the usual snapshot,” Schenider adds.

Additionally, it bolsters the argument, made previously in investigative works like Barbara Ehrenreich’s “Nickel and Dimed,” as well as by the tailwinds that propelled Donald Trump to victory in the 2016 presidential election, that traditional metrics of success, satisfaction, and economic progress are increasingly disconnected from the day-to-day financial struggles and anxieties of most Americans.

Most top-down economic data is “looking over an interval of time that is long enough to mask the volatility,” says Diane Lim, an economist with the Conference Board.

What the big numbers aren’t telling us

From afar, the lot of the typical American worker looks relatively good these days. At 4.4 percent, the unemployment rate in April reached a 10-year low, the Labor Department reported Friday. The number of people filing for jobless benefits now stands at a 17-year low. Wages are rising slowly but surely.  

But just beneath the surface, that picture gets muddier. A Gallup index of economic confidence among Americans is just barely positive, despite the low jobless rate. Unemployment and jobless claims numbers don’t capture the growing cohort of workers who are marginally attached to the workforce, or stringing together multiple streams of income. People who have done some freelance work in the past 12 months now make up approximately 35 percent of the US workforce, according to freelancing website Upwork and the Freelancers Union. A study by Harvard and Princeton economists found that the share of Americans in alternative work arrangements – from temp jobs to contract workers – rose from 10 percent in 2005 to nearly 16 percent in 2015. 

As a result, finding surer footing is a dominant, and growing, priority. In fact, when given the choice between moving up the income ladder or having more income stability in a 2015 Pew study, 92 percent of Americans picked stability – an increase of 7 percentage points since 2011. 

"It’s not just about having a job [anymore], it’s about the quality of the job,” Morduch says.

The decline of manufacturing and other union-protected jobs has given way to a rise in service sector work that is “traditionally lower-wage, and where people are likely to be subject to schedule changes on a weekly or even daily basis,” Schneider says. At the same time, she adds, “the cost of living has been rising. There’s less ability to put aside a cushion and have slack in their week-to-week budget.”

How to cope?

This necessitates constant, active budgeting by the families profiled in the “Financial Diaries.” They clip coupons, pay off small loans to families by doing chores and other housework, and have to make day-to-day calls on when, exactly, they can pay their mortgages on a given month. A financial emergency, like a medical bill or car repair, can knock them off their feet even if they have solid annual earnings. 

Haley Hamilton, a bartender and freelance journalist in the Boston area, has seen her income range from $1,200 in tips from a single table to less than $400 in a week. She compensated for the uncertainty intrinsic to her work in the first few years by just working all the time. “I’d go do a reporting gig all day and then tend bar at 5,” she remembers. “It wasn’t sustainable.” 

Now, she works three shifts a week tending bar. Still, the possibility of a major setback is never far from her mind.

That kind of heightened financial volatility can make it nearly impossible to subscribe to the traditional financial advice for getting ahead: Set a budget, stick with it, and squirrel away the extra. People are trying to “get some discipline and structure into their lives, but also have some flexibility, and those things are fundamentally incompatible,” Morduch says.

Even Ridge, the painter, is aware that his booming business could take a turn due to factors beyond his control. “A sudden downturn [in the housing market] would really hurt me in the slow season,” he says. "But right now something always seems to fall into place.”

Some in the financial services industry are starting to tackle this growing reality. Even, a Silicon Valley start-up, offers a subscription service aimed at smoothing out the ups and downs of people with volatile paychecks into something resembling a regular salary. PayActiv, a payroll program for businesses, allows workers to access their earnings when they need them, not just during traditional pay periods. And some in the retirement industry are starting to build short-term savings considerations into their products, Morduch says.

But unless the problem of instability is addressed with more urgency, Morduch and Schneider argue, there could be consequences for the economy at large. “You don’t want to extrapolate too much from 235 households, but the inability to save long term and build up buffers make them even more vulnerable to downturns,” Morduch says. Any financial shock would be absorbed by individuals, and not by large companies and institutions more equipped to cushion the blow. That has the potential to worsen the nature of the downturns themselves, he adds. “The risk isn’t on the right shoulders.”