Can Uber Save The Middle Class?
A report from JP Morgan Chase Institute titled ‘Paychecks, Paydays, and the Online Platform Economy’ has taken a deep dive into the demographics and sources behind an alarming trend of income volatility in the United States. The report takes a compelling look at how the major players in the Online Platform Economy such as Uber, TaskRabbit, eBay and Airbnb can help stabilize income volatility, as opposed to Americans relying on less than attractive alternatives such as constraining spending or taking on additional credit.
A report from the JPMorgan Chase Institute analyzed anonymized data from 260,000 customers with earnings from any of 30 established online platforms and found that a growing number of American workers are participating in the new ‘gig economy’ in order to weather variations in their monthly income and to raise their standard of living by utilizing the assets available to them.
Americans experience tremendous income volatility, and that volatility is on the rise. Income volatility matters because it is hard to manage. The typical household faces a shortfall in the financial buffer necessary to weather this volatility. Moreover, the decline in real wages since 2009 for all income groups except the top 5th percentile means that life is harder to afford in general, but even more so when earnings dip below average.
The growth of the “Online Platform Economy” adds a new twist to this picture. Rapidly growing online platforms, such as Uber, Airbnb, and eBay, have created a new marketplace for work by unbundling a job into discrete tasks and directly connecting individual sellers with consumers. These flexible, highly accessible opportunities to work generate earnings that are volatile by choice. But they have the potential to help people buffer against income and expense. The flexibility offered by the platform economy also suits the youngest cohort of workers, who prioritize autonomy and work-life balance more than previous generations.
Image Credit: JP Morgan Chase Institute
The findings in this report underscore the importance of asset building so that families have enough liquidity to weather volatility in income and spending. Key, predictable savings opportunities include December to March pay spikes, five-Friday months for individuals with jobs that pay every two weeks or weekly, and tax season for those who receive tax refunds. The five-Friday effect also reveals a structural disconnect between typical employer pay cycles and billing cycles. Eighty percent of individuals received an extra paycheck in five-Friday months because they held a job that paid every two weeks or weekly. Meanwhile, 40 percent of expenditures, including rent payments and installment loans, have a fixed per-month expense regardless of the number of days in that month. These fixed costs are potentially easier to cover during, or shortly after, months with an extra paycheck. Employers, financial institutions, utilities, and landlords can ameliorate this mismatch by offering paycheck cycles that sync with payment cycles or vice versa.