Income instability could have a negative effect on health, research reveals

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Those who are dependent on unstable income from tips and commissions, such as gig workers, are more likely to report insomnia, headaches, and stomach issues.

A study, conducted by Gordon Sayre, Professor of Organisational Behaviour at Emlyon Business School, recently investigated the effects of unstable pay on the physical health of workers under a performance-based salary scheme.

In today's labour force, many depend on fluctuating financial compensations in the form of customer tips, commissions, piece-rate, and performance-based pay. Although such structures have become widely prevalent, they have their downsides too, the research revealed, stating that the onset of health problems that arise due to these compensation systems greatly affects employees.

Known as volatile pay, unstable income streams are found to induce a scarcity mindset where workers put in excessive resources into relieving their lack of earnings, compromising their health where mindfulness and increased savings rate have little effect on the problem.

The research methods involved three separate studies, where the professor surveyed 375 gig workers throughout three weeks, 85 tipped workers every day for two weeks, and 252 higher-paid workers in sales, finance, and marketing across two months.

The data indicated that workers who had higher volatile pay reported experiencing more health symptoms such as headaches, backaches, and stomach problems. He explains that workers with an unsteady income stream were more anxious about making ends meet and were preoccupied with thoughts about their personal finances.

He further defines volatile income, stating that “Dealing with an unstable income means never knowing how much money you’ll make in a given week or month, and that insecurity makes it difficult to cope with ordinary expenses.”

Interestingly, the findings also revealed that on days workers who rely on commission or tips earned more money, they did not feel physically better. The study noted that gig workers and tipped or commissioned workers generally are in the lower income bracket, raising the question of whether the harmful effects were primarily due to low pay, rather than unstable income.

However, the results of the study on workers in sales, finance, and marketing, where commissions and bonuses are common, showed that while the effects are not as strong, they still experienced health issues.

Although some discrepancies were noted to exist in the results across these three studies, the overall pattern of volatile pay decrementing health is consistent across different samples, methods, and measures. In essence, instability in pay is associated with greater psychological threat and poor health for employees regardless of industry. Such detriments on health are most consistent for sleep hygiene, but more work is needed to understand the true impact of volatility.

In totality, these findings suggest that performance-based pay structures seem to have costs to health, and that firms should overcome such instability to foster a healthy and productive workforce.

Professor Sayre urges companies to weigh the perceived benefits of performance-based pay policies that generate instability against the costs to a healthy workforce. Additionally, he recommends that companies strike a balance by reducing workers' reliance on volatile forms of pay, by offering a substantial base pay instead.