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Yves here. At times, I feel naive. Certain workers, like taxi drivers and gig employees, have always been seen as having unpredictable income due to tips and variable hours. However, the reality is that numerous hourly wage earners also face a similar struggle with fluctuating hours and pay. This precariousness, even among those who appear to have stable jobs, sheds light on why many low-income individuals are teetering on the edge of financial hardship. In previous decades, a low-wage worker could manage affordable rent and save enough for a used car within a year. Today, elevated rent prices and reliance on loans for vehicle purchases have elevated expenses, making many workers just one bad month away from potential homelessness or living in a car.
By Peter Ganong; Pascal Noel Patterson, Assistant Professor of Economics at the Booth School Of Business, University Of Chicago; Faculty Research Fellow at the National Bureau Of Economic Research (NBER); Joseph Vavra, Assistant Professor of Economics at the Booth School of Business University Of Chicago; and Alex Weinberg. Originally published at VoxEU
Over the last decade, various states and cities in the US have implemented ‘fair workweek’ laws aimed at stabilizing worker schedules. This column leverages administrative data on American workers’ paychecks and corporate payrolls to reveal significant month-to-month fluctuations in earnings. Pay instability is widespread, disproportionately affecting lower-paid hourly workers and primarily driven by firms’ labor demands rather than factors related to the workers themselves, such as childcare obligations. These income fluctuations are a genuine risk that influences household decisions and has broader economic implications.
To address concerns about pay instability, cities like New York have enacted ‘fair workweek’ laws. The 2017 Fair Work Week Law in New York City mandates that fast-food employers provide consistent schedules at hiring and notify employees of any changes with at least two weeks’ notice. Additionally, any modifications must be agreed upon by workers and may involve extra pay (Pickens and Sojourner 2025). Similarly, Chicago requires a 14-day notice for schedule changes, with exceptions for unforeseen events, like supplier delays or sudden increases in demand (City of Chicago 2019). Los Angeles, Philadelphia, San Francisco, Seattle, and other municipalities are either adopting or contemplating similar regulations.
These policy discussions hinge on empirical evidence: how prevalent is pay volatility, and do workers consider these fluctuations detrimental? If income instability is widespread and problematic, improved scheduling regulations could enhance worker welfare. Conversely, if these fluctuations are infrequent and essential for business operations, such regulations might reduce overall efficiency without providing real benefits to workers.
Research by Ganong et al. (2025) reveals that pay volatility is not only common but disproportionately impacts lower-income workers. Hourly wage earners, who are generally in more precarious financial situations, experience far more significant swings in earnings compared to their salaried peers. For the 60% of the U.S. workforce that is hourly, these fluctuations influence spending decisions, lead to job changes, and fundamentally alter their work experiences.
Previous studies utilizing annual data highlighted earnings risks throughout workers’ careers (Song et al. 2015, Moffitt and Zhang 2018, McKinney and Abowd 2023, Pruitt and Turner 2020). However, our research emphasizes the causes and consequences of monthly income fluctuations that may be obscured when looking only at annual data.
Payroll Data Reveals Considerable Monthly Income Fluctuations
Using extensive administrative data from worker paycheck deposits into Chase bank accounts and firm payrolls, we uncover substantial monthly earnings fluctuations. In fact, in around 75% of months, workers receive different amounts than they did the previous month. The median change in pay is 5%, with one-quarter of months seeing changes of at least 17%.
This volatility is especially pronounced among hourly workers. Figure 1 demonstrates the disparity in earnings volatility between salaried and hourly employees. Many salaried workers experience no earnings change in the majority of months, whereas hourly workers rarely enjoy such stability.
Figure 1 Heterogeneity of earnings volatility
Notes: This histogram illustrates the distribution of changes in earnings among salaried and hourly workers with ongoing employment. The variation in pay is quantified based on average monthly earnings per paycheck. Specifically, the volatility is determined by the percentage change in earnings for the current month versus the median earnings of the three preceding months.
This unveils two crucial questions. Why do working hours vary from month to month? And how does this instability impact worker welfare?
Corporate Influence in Monthly Earnings Volatility
Our findings indicate that factors associated with workers—such as temporary unpaid leave, childcare responsibilities, or seasonal changes—do not primarily account for earnings instability; instead, it is largely firms that cause shifts in worker hours. As a result, a significant portion of this instability is imposed on workers and lies beyond their control.
Figure 2 illustrates the connection between fluctuations in firm labor demand—measured as changes in total firm hours—and individual worker earnings volatility. A positive correlation exists: greater shifts in the total hours worked by all employees correspond with larger changes in the pay of individual workers.
Figure 2 Correlation between firm-level volatility and individual worker earnings volatility
Notes: This figure represents the link between the volatility of total hours in a firm and individual worker pay volatility. The measure of firm total-hours volatility is calculated by summing hours across all workers and determining the median absolute monthly change. Individual worker pay volatility is assessed by the median absolute monthly change for each worker at the firm. Each dot indicates the average individual worker volatility for a collection of firms with similar total-hours volatility.
Income Variability and Its Effects on Spending
Income instability impacts workers’ wellbeing in two significant ways. Firstly, using bank-account data, we reveal that volatility in income leads to variability in spending. Spending tends to fluctuate more when workers transition to higher-volatility firms (Figure 3).
Figure 3 Correlation between income volatility and spending volatility
Notes: This figure presents the relationship between individual monthly income volatility and non-durable spending. The volatility measure is determined by the individual’s median absolute change from the previous month. Consumption captures spending on non-durable goods and services, obtained from bank-account data. Each dot signifies the average consumption volatility for individuals with comparable income volatility.
Secondly, our research indicates that hourly workers are more prone to leave high-volatility jobs, and their turnover rates are affected by firm volatility significantly more than those of salaried workers employed in the same company.
Considering the costs associated with earnings volatility, we examine how much workers would be willing to sacrifice to avoid such instability. Integrating the empirical findings with standard labor market economic models, we estimate that the median hourly worker might forgo 4%–11% of their income for the kind of stable earnings typically received by salaried workers. For lower-income workers, who face greater income volatility, the percentage they would relinquish for the stability of a salary is even higher.
Our results confirm that workers generally disfavor income volatility; however, further exploration is needed to assess whether firm scheduling flexibility is crucial for business operations.
In conclusion, the reality is that workers endure significant monthly earnings risks often overlooked in annual assessments. This risk predominantly affects lower-income, hourly workers and is largely a result of variations in the demand for labor from firms, imposing significant costs on those impacted. The earnings fluctuations discussed in this column represent a legitimate source of risk that profoundly influences household decisions and carries substantial implications for the broader economy.
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