Addressing the $1,000 Problem: A Necessity for the Workers Who Are Shaping our Future
It is hard to be a worker in America today. Research shows that wages have stagnated over the past 30 years and 55 percent of people report living paycheck to paycheck. The safety net and workplace protections that once buoyed working people are rapidly disappearing, shifting risk and uncertainty away from companies and governments to millions of everyday Americans who’re struggling to stay above water and get ahead. And yet, workers are being asked to do more with less.
These realities exist in the context of change. Technology is enabling new business practices and modes of working that our institutions and rules struggle to keep pace with. We have a responsibility to ask ourselves what we, as a country, stand for and how we realize a social contract that reflects our values in the modern economy. This means listening to workers, understanding what’s happening within the 160 million household economies across the nation, and experimenting with new ways to support hard working people that will drive our economy and society forward.
At The Workers Lab and The Rockefeller Foundation, we’ve been reflecting on our nation’s social contract. One shared value that unites us is our belief that people who are working should not live in poverty. We’ve been deeply motivated by the knowledge that too many do—new research, like Jonathan Morduch and Rachel Schneider’s U.S. Financial Diaries, have looked at the financial lives of households across America and shown that wide fluctuations in income from month to month are commonplace for many workers. This uncovers an important truth: Many of those defined as “middle class” according to their annual incomes may actually be experiencing regular episodes of poverty. It is with this knowledge and an ongoing commitment to lifting people out of poverty that The Workers Lab and The Rockefeller Foundation joined ideas42, Rachel Schneider, and Kimberly Gartner, to address the $1,000 problem.
People who are working should not live in poverty.
What is the $1,000 problem?
The majority of workers in the United States are one unexpected expense away from financial crisis. In fact, 47 percent of Americans say they couldn’t cover an unplanned $400 expense, such as a medical bill. This problem is complex and cannot be explained by a single factor. But one thing is for sure—the root of the problem is not workers’ failure to save. Research shows that low-income earners save in significant numbers, albeit often outside the traditional mold of asset purchase savings or retirement savings.
At The Workers Lab and The Rockefeller Foundation, we believe that one element of the problem relates to this notion that workers are saving in a context where their incomes fluctuate significantly. Supporting this conclusion, Pew’s research shows families that experience income volatility—whether a gain or loss—report lower financial well-being and fewer savings than those with a stable income. This volatility has long been a reality for distinct sets of workers (those working for tips, for example), but in today’s economy, it’s more widespread.
“Just-in-time scheduling” shows us how technology is changing income flows associated with traditional jobs. Online platforms that connect people to work are introducing new, variable income streams for millions of workers. And the labor market has evolved such that over a third of the population finds itself in independent work arrangements—which don’t include the standard benefits and protections that help stabilize income from traditional W-2 employment relationships.
What happens to a worker when, in the midst of an income dip, life throws a significant expense—a car accident, a hospital trip for a broken bone, a child’s braces—into the mix? What happens to the gig worker whose computer breaks, making it impossible to connect to work? The $1,000 problem. Workers can’t afford to cover the cost meaning they must borrow or buy on credit. As documented in Sendhil Mullainathan and Eldar Shafir’s book: Scarcity: Why Having Too Little Means So Much, this can have compounding negative effects and further disadvantage people from low-wealth, low-income backgrounds.
What can we do?
We can recognize and embrace the complexity of the $1,000 problem, but we must not let it impede our action. That’s why The Workers Lab, The Rockefeller Foundation, and its partners are tackling this issue head-on with a Design Sprint for Social Change. We’re drawing on thought leaders across the fields of financial inclusion, workers’ rights, and asset building to design ways to get contractors access to $1000 when they need it for unexpected expenses. Giving people more near-term stability is a necessary step in providing longer-term opportunity. We believe this step will be a meaningful step forward in offering a concrete solution in future of work conversations that so often focus on the problem. As this process unfolds, we’ll be sharing out key learning and challenges. We hope you will join us and invite you to watch for a future post.