The COVID-19 pandemic revealed a long-standing fact about the US labor market: work and wages alone do not guarantee financial security. A worker’s relationship to their employer—whether they work full- or part-time or whether they are a permanent or contract employee—may be more predictive of their financial well-being because these work arrangements determine access to workplace benefits, such as health insurance, retirement, and paid leave. Predictable and sufficient pay plus workplace benefits can lay a foundation for financial security, yet millions of workers are excluded from jobs offering these cornerstones.
How must work and benefits be redesigned so that all workers—including those earning low and moderate wages or in nonstandard arrangements and others left out of private benefit systems—can meet their expenses, withstand financial shocks, and save for the future? And how can we ensure Black and Latinx workers, who are overrepresented in low-wage and nonstandard work, have an equitable shot at building financial security?
The Aspen Institute Financial Security Program (Aspen FSP) and WorkRise recently convened the following experts to explore these questions at a public event: Sheida Elmi, Aspen FSP research program manager who shared insights from a new matrix and report on work and benefit arrangements; Anmol Chaddha, who oversaw the California Future of Work Commission’s recent report on a new social compact for workers; and Debra Plousha Moore, a business executive and consultant with extensive experience advising corporate leaders on human resources, benefits, diversity, equity, and inclusion. Elisabeth Jacobs, WorkRise deputy director and Urban Institute senior fellow, moderated the discussion.
Sarika Abbi, associate director at Aspen FSP who leads Aspen’s Benefits21 initiative, framed the discussion, noting that the pandemic highlighted both workers’ “financial fragility” and the urgent need for systemic change so “work and benefit systems… are centered on workers, their financial security, and economic dignity.”
Here are three key takeaways from the discussion:
Employer-driven benefit systems leave many workers without a cushion
The pandemic revealed fundamental flaws about a system that conditions benefits on employment. Millions of workers who lost jobs also lost health insurance at a time when they needed it most, and millions more in part-time or nonstandard work were ineligible for employer-provided health insurance and paid leave to begin with. Evidence shows both health insurance and paid sick leave improve household financial security.
An employer-driven approach to delivering benefits has created a “two-tiered system” of workers in high-wage jobs with rich benefits on one hand and workers in lower-wage jobs with stagnant wage growth and minimal or no benefits on the other, fueling unequal financial outcomes, Elmi explained.
An employer-driven approach to delivering benefits has created a “two-tiered system” of workers in high-wage jobs with rich benefits on one hand and workers in lower-wage jobs with stagnant wage growth and minimal or no benefits on the other, fueling unequal financial outcomes, Elmi explained.
“Not only are higher-paid workers making more money, they are more likely to be able to participate in and contribute more to the benefits that can provide financial stability” than low- and moderate-income workers, who face the “twin pressures of stagnating wages and rising costs of living,” she said. In addition, independent contractors and temporary workers, whom companies are increasingly relying upon for core functions, face greater economic insecurity because most aren’t covered by workplace benefits and protections.
In our current system, “only one type of worker—higher-income, full-time employees receiving workplace benefits—stands a reasonable shot at financial security,” Elmi noted.
Another weakness of employer-drive benefits is their discretionary nature; employers have the power to decide who is eligible for benefits and the quality and cost of those benefits, leading some low- and middle-wage workers with access to benefits to decline them because they are low quality or workers don’t earn enough to afford premiums and other employee contributions. Studies show low-wage workers are less likely to receive benefits through work and are less like to opt in if they do. Among the lowest-wage quartile of workers, 42 percent had access to an employer-provide retirement savings plan, but only about half participated in them, according to the March 2020 National Compensation Survey.
Moore shared that employers have an opportunity to strengthen workplace benefits, which could empower workers to take a longer-term view of their wages and benefits, “so they understand their earnings, what they are savings, and how [benefits] impact their financial security.” She added, “It’s not about the current time, but about the future.”
Occupational segregation contributes to unequal financial outcomes
Chaddha explained that occupational segregation has also contributed to greater financial vulnerability among Black and Latinx workers, as many are overrepresented in low-wage jobs that prevent them from building savings and wealth.
Workers of color, including immigrants and women, dominate domestic work, caregiving, and agriculture, industries with low wages that have been historically exempt (PDF) from labor protections that support financial security, the result of racist policy choices rather than a “natural” sorting process by workers, he said. During the early months of the pandemic, research shows Black and Latinx families were more likely to experience jobs and income loss and were less likely to have financial reserves to cover expenses.
Calls for workers to seek higher-wage jobs through skills and training miss the point that jobs themselves need an upgrade, Chaddha noted.
The crisis of financial precarity among workers reflects a larger job quality crisis in a labor market with a growing share of bad jobs with poor pay and no benefits and avenues for financial security, Chaddha said. A recent Gallup survey of workers found that those who began 2020 in a low-quality job were more likely to be laid off than those in higher-quality jobs. Calls for workers to seek higher-wage jobs through skills and training miss the point that jobs themselves need an upgrade, Chaddha noted.
However imperfect, public supports stabilize workers without access to private benefits
For many low-wage workers excluded from employer-provided benefits, public safety net and social insurance programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP), and housing subsidies “fill in gaps between what people earn and what they need to meet their basic needs,” Elmi said. A recent GAO analysis found 70 percent of working adults receiving Medicaid and SNAP work full time (at least 35 hours per week).
Yet these programs weren’t designed to help workers build long-term financial security, but rather to keep them out of poverty and provide immediate assistance. Income thresholds and asset limits mean workers can be living near poverty but still earning too much to qualify, and time limits and inadequate program funding means not all who qualify will receive assistance. Antiquated systems, state variation in benefits, and outdated eligibility rules hamper programs’ ability to respond rapidly and equitably to workers in need. The unemployment insurance (UI) program was ill-equipped to handle the massive influx of claims filed by workers laid off during the pandemic.
Still, the government’s role in stabilizing household finances during the pandemic was undeniable, as expanded UI benefits and economic impact payments (stimulus checks) helped families cover expenses, build savings, and pay down debt.
“We saw cash infusions on a scale that we haven’t seen before in the US, and those helped workers stabilize their cash flow and build up cushions amid this uncertainty,” Elmi said.
Prospects for helping low- and moderate-income workers build lasting financial security may be brighter because of a historic expansion of the safety net under the Biden administration. Although the most recent COVID-19 relief package expanded cash, food, and housing assistance, UI benefits, and array of family-friendly tax credits, new proposals would guarantee all workers paid leave, covering 80 percent of low-wage workers’ replacement wages, make permanent tax credits for health insurance and child care, and boost direct care workers’ wages. Such bold policy moves could begin equalizing opportunities between high- and low-wage workers for the latter to achieve the financial security they’ve been excluded from for too long.
Learn more:
The Complete Financial Lives of Workers: A Holistic Exploration of Work and Public and Workplace Benefit Arrangements (Aspen Institute)
A Modernized System of Benefits is the Foundation for an Inclusive Economy (Aspen Institute)
A New Social Compact for Work and Workers (California Future of Work Commission)