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Earnings instability affects millions, risking financial stress

by Benefits Expert
04/03/2025
Hospitality worker, low pay, hotel
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Millions of employees face ‘major earnings instability’ as their wages fluctuate by more than a quarter multiple times a year, research has found.

Analysis from the Resolution Foundation showed that 2.7 million workers, around one in seven, in Britain experience erratic earnings. The foundation said that this is defined as having four or more months in a year where their earnings are at least 25 percent above or below their average pay. 

Researchers looked at anonymised HMRC data covering more than 250,000 employees between 2014 and 2019. This revealed that even among people who are consistently employed, only one in four experience ‘stable’ pay. Stable pay is defined as monthly earnings within 10 percent of an individual’s own average across the whole year. 

Younger workers are the most likely to face the issue of erratic earnings. Nearly a quarter (24 percent) of 20-24 year olds experience it, data showed.

Increases in the minimum wage have reduced levels of low hourly pay to 3 percent, which the foundation said is the lowest on record. However, the report’s authors warned that pay instability for lower paid workers has remained “persistently high”, risking financial stress and more reliance on credit.

For the group of employees that experience unstable wages, researchers found that the average change between consecutive months is 15 percent. Using the example of someone on average pay, this would mean a change of £358. The foundation said that this is equal to what the average UK household spends on food (£284) and clothing (£74) in a typical month.

Erratic pay was found to be most common among the lowest earners, with 30 percent of employees in the bottom tenth of earners experiencing it. But unstable pay was also found to be common among higher earners. Nearly a fifth (18 percent) of employees in the top ten percent of earners experience it, compared to 14 percent among all workers. 

The report said unstable pay has different causes for low and high earners.

For high earners this fluctuation is likely to be driven by bonuses, rather than negative shocks. Researchers said that large month to month changes for this group are concentrated at the end of the financial year when a lot of bonuses are paid. 

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Between 2014 to 2019, on average bonuses accounted for 55 percent of total earnings in March of each year in the finance and insurance industry. For the rest of the economy the comparable figure is just 9 percent.

The foundation said that the high volume of pay volatility in low-paying sectors was more of a concern. 

Erratic earnings are experienced by 27 percent of workers in hospitality, 23 percent in the arts and recreation industries, 16 percent of people working in retail, and 14 percent in the health and social care sector. Researchers said it is no coincidence that these same sectors are also the heaviest users of zero-hours contracts.

The foundation called for more to be done to support these workers and stabilise their living standards. Changes that would support this 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.

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.”

The full data analysis is detailed in the report Unstable Pay, produced by the Resolution Foundation with the support of the Joseph Rowntree Foundation.

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