Resolution Foundation defined earnings instability as having four or more months in a year where their earnings are at least 25% above or below their average incomings.
The think tank’s report Unstable Pay, produced with the support of the Joseph Rowntree Foundation, uses anonymised data from HMRC covering over 250,000 employees between 2014 and 2019. It found that even among people consistently employed, only one in four experience ‘stable’ pay – defined as having monthly earnings within 10% of one’s own average in all months of the year.
Younger workers are the most likely to receive erratic earnings, with one in four (24%) 20-24-year-old employees experiencing it.
While a rising minimum wage has reduced levels of low hourly pay to 3%, 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%. For someone on average pay, that would equate to a £358 change – equal to what the average UK household spends on food (£284) and clothing (£74) in a typical month.
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Differences between low and high earners
Erratic pay is most common among the lowest earners, with three in 10 (30%) employees among the bottom tenth of earners experiencing erratic pay.
But erratic pay is also common among higher earners; 18% of employees in the top 10% of earners experience it, according to Resolution Foundation, compared to 14% among all workers.
However, 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.
But lower earners are likely to be on zero-hours contracts, with erratic earnings experienced by roughly one in four employees in the hospitality and arts and recreation industries, and about one in seven employees in retail and health and social care.
The authors of the report have called for more support for low earners with erratic earnings, including making Universal Credit more compatible with volatile pay.
Nye Cominetti, principal economist at 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.”
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