The effect of income volatility on financial well-being

by Johanna Peetz & Jennifer Robson
Posted on November 14, 2019

Gig work has become an important part of today’s labour market. Approximately one in six workers is self-employed; one in eight is on a temporary contract (OECD, 2018). And we’re not even talking about those hired through temporary placement agencies, and the many contingent and on-call workers.

A key difference between a gig worker and a traditional salaried one is that the former’s income usually fluctuates from one month to the next. What happens to his or her ability to manage finances? When we sat pondering over this question, we realized that it might work two ways. On the one hand, higher month-to-month income volatility might encourage gig workers to do more planning and save more, smoothing out their income over time. On the other hand, more volatility might make it harder to stick to a saving or budget plan, making it harder to plan even a month ahead. So which is it? That’s what we wanted to find out.

“Income volatility can cause various negative financial effects. Does the feeling of having control over your volatile income change these negative outcomes?”

Being in control

Swings in monthly income, whether due to gig work or not, have been linked to a range of negative financial effects, including lower overall savings (Fisher, 2010; Barr, 2012; Mullainathan & Shafir, 2013) and a higher rate of missed bill and mortgage payments (Farrell & Greig, 2016; 2017; Diaz-Serrano, 2005). In our study, we decided to look at the negative effects of income volatility on a bigger picture of personal financial well-being. We also wondered how the effects change if you feel some control over the monthly income volatility you experience. Swings in income may either be under a worker’s control (such as the worker deciding to pursue fewer contracts in a certain month) – or not (think of a supervisor assigning more shifts to a certain worker).

Consider Jane and John, two gig workers. Jane works as often as she can, doing freelance writing on a few different platforms. Her income fluctuates greatly from one month to the next, and it’s hard to know which projects will announce themselves and which pitches she’ll win. And then there’s John, a self-employed software consultant. He also uses platforms to rake in new projects, but he enjoys being able to take time off whenever he wants to, or to turn down jobs he’s not interested in. For Jane, gig work feels slightly precarious, while John is totally happy about his own flexibility. Who saves more?

Generally, a more internal locus of control – when people believe to be in charge of their own fate – is strongly associated with higher levels of financial capability, such as higher rates of saving (Cobb-Clark, Kassenböhmer, & Sinning, 2013). Is control over income volatility indeed linked to financial outcomes? That’s another question we wanted to answer in this study.

“A sense of controllability over income swings might buffer the negative effects of income volatility.”

Crucial: three income profile types

We collected a sample of over 1,000 adults in the United States with a range of different types of jobs and income levels. We asked participants to rate the extent of the volatility or stability in their monthly income, but also whether they felt in charge of those month to month changes. In our sample, 48% reported to have a stable income, 16% reported their income varied from one month to the next (having no control over variations), 37% reported their income varied (variations being within their own control). We also measured income volatility on a 7-point scale which corresponded well with participants’ self-categorization into three types of income profiles: stable income, controlled volatile income and uncontrolled volatile income.

Next, we asked our participants questions about their personal financial well-being. We found that participants with more income volatility were more likely to report missing bills, loan, and mortgage payments in the past 12 months. They also mentioned more financial stress and financial problems in general. These detrimental effects of income volatility were independent of total income amount, age, gender, education, or household size. A greater degree of income volatility was also linked with other negative outcomes such a greater interference of work with family responsibilities.

When comparing the three types of income profile, it became clear that people with volatile incomes reported more trouble in making ends meet. They reported more financial stress, more work-life interference, and even lower life satisfaction.

However, these detriments were limited to those people who reported income volatility that was outside their own control. Gig workers who reported being in control of the month-to month income changes were about as financially content as those with stable incomes. In sum, a sense of controllability over income swings might buffer the negative effects of income volatility.

Giving back control

So far, our research shows that the way people are paid does indeed affect their financial outcomes – above and beyond what they are paid. Unpredictable, volatile income contributes to self-reported financial stress and to other financial problems (like missing bill payments) . People are financially happier and do wiser things when they get back some of the control over their own month-to-month income. These findings raise important questions for both practitioners and policy-makers.

Practitioners in financial services may want to reconsider their products and services (like automated savings or investment plans). Are these set up to work for clients whose incomes rise and fall unpredictably? Might there be a way to adapt certain products in order to support the financial well-being of clients who can’t count on the same pay slip each month?

Policy-makers working for a government may want to find out if their income support programs improve income volatility – or actually make it worse. What can they do to help gig workers experience more control over when and how much they work, so that they experience the benefits of being in control, rather than the stress of uncertainty?


  • Barr, M. S. (2012). No Slack. Washington D.C.: The Brookings Institute.
  • 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.
  • Mullainathan, S., & Shafir, E. (2013). Scarcity: Why Having Too Little Means So Much. Macmillan.
  • Organization for Economic Cooperation and Development (2018). “The Future of Social Protection: What works for non-standard workers”, Policy Brief, May 2018, OECD, Paris. Retrieved from