Students devise strategies to ease income volatility

Ways to help individuals battered by income volatility are outlined in a new report from the La Follette School of Public Affairs at the University of Wisconsin–Madison.

More than half of the U.S. population faces income volatility, which disproportionately affects low-income individuals — a group less likely to have the financial resources to manage harm caused by frequent swings in income.

The report prepared for The Financial Clinic, a New York nonprofit, community-based organization, highlights the importance of income volatility and discusses policies, programs and products that can mitigate income volatility for low-income individuals.

“As the first nonprofit to engage in financial development work for working poor Americans, the clinic was aware of the role of income volatility as a critical barrier to financial security,” says Haidee Cabusora, director of policy services and research at The Financial Clinic. “However, the report’s thoughtful analysis highlights the depth and persistence of these issues in larger historical and systemic contexts.”

Income volatility has been on the rise since the 1970s, says Sarah Austin, one of the authors, and affects more than half of the U.S. population, with more than 35 million working households experiencing a 50 percent or greater change in income in 2010. “The rise in income volatility coincides with changing labor markets and the growth of part-time and temporary positions,” Austin says. “Individuals who work in precarious positions encounter job insecurity and limited access to employer benefits. Moreover, public benefits and financial services have not adapted to serve the needs of the growing population of individuals with volatile incomes.”

Austin produced the report with Virginia Andersen, Joel Doucette, Ann Drazkowski and Scott Wood as part of the Workshop in Public Affairs taught by J. Michael Collins, associate professor of public affairs and human ecology, and faculty director of the Center for Financial Security at UW–Madison. The report is titled “Addressing Income Volatility of Low Income Populations.”

“This report launches a timely discussion of what policies and programs can do to mitigate the hardships imposed by increasing income volatility,” Collins says. “(It) develops an innovative set of alternatives to stimulate innovations in policies, programs and financial products aimed at economically vulnerable households.”

After consulting with financial experts, the students suggested that better employer scheduling practices, enforcement of labor laws, new legislation, new employer-provided benefits, and use of wage-related financial technology could help reduce income volatility. Enrollment and eligibility processes for public benefits could be designed and delivered in ways that better serve populations with volatile income.

The report also provides a roadmap for The Financial Clinic to position itself as a leading organization addressing income volatility. “As a pioneer and innovator, The Financial Clinic is always looking for ways to improve its high-performing financial development programs,” Cabusora says. “To help realize the organization’s vision of financial security for all Americans, the staff is contemplating how to incorporate the findings into the clinic’s policy agenda. The clinic will be examining the debt and savings products and strategies highlighted in the report to explore the benefits to its customers.”

Few nonprofits have the resources to conduct such a thorough analysis, Cabusora adds. “Graduate school groups can provide organizations with an invaluable team of collaborators and mini-experts to provide a fresh perspective and suggestions for practical solutions.”

The report “Addressing Income Volatility of Low Income Populations” is available online.