Around one-in-seven employees across Britain experience erratic earnings – defined as having four or more months in a year where their earnings are at least 25 per cent above or below their average incomings – according to new analysis from the Resolution Foundation published today .
The report Unstable Pay, produced with the support of the Joseph Rowntree Foundation, uses newly available anonymised data from HMRC (covering over 250,000 employees between 2014 and 2019) to reveal that even among people consistently employed, only one-in-four experience ‘stable’ pay – defined as having monthly earnings within 10 per cent of one’s own average in all months of the year. Younger workers are the most likely to receive erratic earnings – 1-in-4 (24 per cent of) 20-24 year old employees experience it.
While a rising minimum wage has reduced levels of low hourly pay to 3 per cent – its lowest on record – the report warns that earnings instability for lower paid workers has remained persistently high, risking financial stress and an extra reliance on credit.
Among employees that experience erratic earnings, the average change between consecutive months is 15 per cent. For someone on average pay that would equate to a change £358 – equal to what the average UK household spends on food (£284) and clothing (£74) in a typical month.
When it comes to the earnings distribution, erratic pay is U-shaped. It is most common among the lowest earners: 3-in-10 employees (30 per cent) among the bottom tenth of earners experience erratic pay. But erratic pay is also common among higher earners: 18 per cent of employees in the top ten per cent of earners experience it, compared to 14 per cent among all workers.
The report notes that erratic pay has different causes among low and high earners.
For top earners it is likely to be driven by bonuses, not negative shocks. Large month-on-month changes for top earners are concentrated at the end of the financial year when bonuses tend to be paid. From 2014 to 2019, on average bonuses comprised 55 per cent of total earnings in March of each year in the finance and insurance industry (compared to 9 per cent in the rest of the economy).
Of greater concern is the high volume pay volatility in low-paying sectors. Erratic earnings are experienced by roughly one-in-four employees in the hospitality (27 per cent) and arts and recreation (23 per cent) industries, and roughly one-in-seven employees in the retail (16 per cent) and health and social care (14 per cent) sectors. It is no coincidence that these same sectors also make the greatest use of zero-hours contracts, says the Foundation.
The sheer scale of major earnings instability means that more needs to be done to support these workers and stabilise their living standards, say the authors.
This should include making Universal Credit more compatible with volatile pay, boosting financial resilience among low-income workers, and encouraging employers to smooth out volatile pay for their employees.
The concentration of earning instability among young and low-paid workers also underlines the need to strengthen employment rights, as the Government is currently doing, particularly when it comes to giving zero-hours contract workers more control and notice over shift patterns.
Nye Cominetti, Principal economist at the Resolution Foundation, said:
“Most people take the stability of a regular, same-sized pay cheque for granted. But major earnings instability is a feature of modern working life for almost three million employees across Britain, who see their pay fluctuate by at least a quarter multiple times a year.
“Not all volatility is bad – for some bankers it amounts to how big their end of year bonus will be.
“But high levels of erratic pay among young and low-paid workers is more concerning, as they have fewer resources to fall back on when earnings dip. They are also in a weaker position to bargain for stability – underpinning the importance of the Government taking action to improve stability for those workers through its Employment Rights Bill.”
