Living gig to gig and paycheque to paycheque: How income volatility affects financial decisions

A TFI research project by Johanna Peetz and Jennifer Robson
Posted on February 01, 2021

In 2020, many workers, even those used to steady hours and pay, experienced a sudden shock to their income as they were asked to stay home to avoid spreading COVID. The pandemic also highlighted many pre-existing economic and financial challenges. In Canada, the United States and elsewhere, some workers in non-traditional and “gig” work have been especially hard hit. When they are hit by an unexpected shock, will these workers have savings to fall back on? Or do swings in monthly income make it less likely that people will save up for those emergencies? The experience of unpredictable changes in income might have important consequences for individuals.

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Pre-COVID, gig work was already an important part of today’s labor markets. Approximately one in six workers are self-employed and one in eight are on a temporary contract (OECD, 2018). In Canada, where our research focuses on, the most recent estimates suggest that 8.2% of workers are engaged in some form of gig-work, 5.5% more than 10 years earlier (Jeon, Liu and Ostrovsky, 2019). As economies recover from the current recession, the proportion of gig workers could increase further.

Does income volatility matter?

There are several reasons to believe that gig workers might face greater financial insecurity. Compared to traditional salaried workers with stable hours of work, the month to month incomes of self-employed and contingent workers is more unpredictable. Swings in monthly income, whatever the source of the volatility, have been linked to a range of negative financial effects including lower savings (Fisher, 2010; Barr, 2012; Mullainathan & Shafir, 2013), and more missed bill and mortgage payments (Farrell & Greig, 2016; 2017; Diaz-Serrano, 2005). One of our research questions was to examine whether the degree of income volatility (the extent to which income varies month to month) would be linked to financial outcomes above and beyond the overall amount of income.

We used data (n=6,397) provided by Real-time interactive Worldwide Intelligence (RIWI) collected in Canada and the U.S. during the 2020 COVID shut-downs. This data provides an estimate of participation in gig work that is similar to the estimates by Jeon et al (2019). While gig work was not associated with greater anxiety about job loss or bill payments, respondents engaged in one or more forms of gig work were almost twice as likely to report anxiety about food security.

Does control over the income volatility matter?

In addition to the nature of income – stable or volatile – the feeling of control over the income shifts might matter. Swings in income may either be under a worker’s control (such as the worker deciding to pick up more shifts, or pursuing fewer contracts in one month than in another) or they might be outside the worker’s control (such as a supervisor assigning more shifts, or being less successful in obtaining contracts in one month than in another). The feeling of having more control over one’s fate is also described as having a more internal locus of control. Generally, a more internal locus of control is strongly associated with higher levels of financial capability such as higher rates of saving (Cobb-Clark, Kassenböhmer, & Sinning, 2013). We examined this in two studies: (1) a correlational study examining links between volatility, control over volatility and financial outcomes, and (2) an experimental study examining the causal effect of working under ‘income volatile’ rather than ‘stable income’ conditions on the financial decision to save money.

First, we conducted an online correlational survey (N= 982 Americans). We asked participants about their actual income, distinguishing between (1) stable income, (2) volatile income where income swings could not be controlled, and (3) volatile income where income swings could be controlled. Participants who characterized their income as varying uncontrollably reported significantly lower internal locus of control compared to salaried workers. These respondents with gig work-like incomes also reported lower life satisfaction, more financial stress and more difficulty in making ends meet, choosing financial products and staying informed on financial matters. Participants who characterized their income as volatile but who also reported a degree of control over the volatility reported a more internalized locus of control, lower financial stress, and greater financial capability, including planning ahead, similar to as salaried workers, although they also reported less life satisfaction and more financial stress. In sum, the results from the study suggest that instability of income is linked to worse financial outcomes, but especially so for those who feel no control over the volatility of their income.

Second, we conducted a lab-in-the-field experiment. We met with participants (N=149 Canadians) in community settings and asked them to complete a simulated work task. Participants were randomly assigned into a simulated work exercise that lead to either regular predictable payout-per-minute work (“salary” condition), or work that resulted in a variable payout per task but where participants could choose whether to work or not (“self-employment” condition), or work that resulted in a variable payout per task, where participants did not have a choice over whether or when to attempt a task (“gig condition”). All participants received the same total compensation even though the organization of the work they completed differed. All participants were asked to choose between taking the $15 payment right away or to “save” their earnings by waiting 2 weeks and receiving $17 ($15 earnings plus $2 in “interest”).

Eighty-four percent of participants in the “salary” condition chose to save their money, but only 68% of participants in the “gig-work” and “self-employment” conditions chose to save their money (see Figure 1). The results from the experiment suggest that volatility in pay encouraged participants to prefer immediate payment over deferring compensation through saving. In contrast to our findings from the survey, our experimental results suggest that the negative impact of income volatility on financial outcomes (in this case savings) does not differ by whether people have more or less control over their working conditions.

What is the main take-away of this research?

Workers with incomes that frequently go up and down could be expected to save more money to smooth their consumption. But, consistent with the literature, we find that income volatility is associated with more financial stress and worse financial capabilities. We expected to find that having some choice or control over the variability in one’s earnings from work might mediate the negative effects of volatility. We find mixed evidence between our survey results and our experimental results, with our experimental results suggesting that control over the volatility may not be enough to change financial behaviors.

So far, our research suggests that financial decisions might be a result not only of the amount of income someone makes, but also of the predictability or volatility of that income. For stakeholders, these findings raise important questions: For practitioners in financial services, the question is: are their products and services (things such automated savings or investment plans) set up to work for clients whose incomes rise and fall unpredictably? Can products and services be adapted or created to better support the financial well-being of clients who can’t count on the same paycheque each month?

For policy-makers, the key question is whether income assistance and social assurance programs should continue to be tied to jobs or whether they should be adapted to include income earned in self-employment and in gig work. If you have some control how much you work and earn, isn’t there a moral hazard in providing publicly-funded insurance against a drop in your income. Our results suggest that people with volatile incomes may not be as willing to self-insure through their own savings.

The global economy has suffered the most acute shock, due to COVID, on record. As economies navigate a pathway to partial and eventual recovery in the wake of the virus, we may find that more work has been converted to on-demand forms of labour where a worker can’t be certain of their take-home pay from one period to the next. We may see more employers shift to contracts with workers who are paid as self-employed, rather than employees. As our work in this project illustrates, gig-work and income volatility can have behavioral effects on consumers that we shouldn’t ignore.


  • Cobb-Clark, D. A., Kassenboehmer, S. C., & Sinning, M. G. (2016). Locus of control and savings. Journal of Banking and Finance, 73, 113-130.
  • Diaz-Serrano, L. (2005). Income volatility and residential mortgage delinquency across the EU. Journal of Housing Economics, 14(3), 153-177.
  • Farrell, D., & Greig, F. (2016). Paychecks, paydays, and the online platform economy: Big data on income volatility. JP Morgan Chase Institute. Washington.
  • Farrell, D., & Greig, F. (2017). Coping with Costs: Big data on expense volatility and medical payments. JP Morgan Chase Institute. Washington.
  • Fisher, P. J. (2010). Income uncertainty and household saving in the United States. Family and Consumer Sciences Research Journal, 39(1), 57-74.
  • Jeon, S-H., Liu, H., & Ostrovsky, Y. (2019). Measuring the gig economy in Canada using administrative data. Analytical Studies Branch Research Paper Series, Statistics Canada: Ottawa.
  • Mullainathan, S., & Shafir, E. (2013). Scarcity: Why Having Too Little Means So Much. Macmillan.