Income Instability: A Growing Challenge for Low-Income Families with Children

Background: Income volatility has been increasing in the U.S., particularly among low-income and working poor families. The implications of this trend for families and children are not well understood, as most research generally conceptualizes and measures income as a static condition. Yet, theory and research from developmental psychology and sociology suggest that unstable family resources are likely to interfere with children’s healthy development, particularly if parents do not have the economic or psychological resources to buffer against turbulence.

We use a nationally-representative dataset (the Survey of Income and Program Participation-SIPP) to describe trends in intra-year income instability among families with children from the mid-1980s to the late-2000s using a variety of measures, including the coefficient of variation, average percent change, and longest stability spell. We also examine the relationship between these volatility measures and parent stress, parenting, and child school outcomes. The paper ends with a discussion of the implications of our findings for social safety net programs.

Methods: The SIPP is the only available survey of US households that collects monthly income information, select parenting measures, and reports of child school performance. Our analysis of time trends uses five SIPP panels and is restricted to children between the ages of 0 and 18. (We focus on the child as the unit of analysis in order to understand children’s experiences of household income volatility.) The analysis of associations between family income instability and parent and child outcomes uses the 2004 SIPP panel (N=20,740). We construct multiple income volatility measures that capture magnitude, frequency, and direction of changes in income, and use OLS and logistic regression models to predict outcomes, controlling for income level and a large set of baseline covariates. Because income volatility and poor academic performance disproportionately affect low-income families and youth, we also examine patterns of relationships by income quintile.

Results: Our findings suggest that, since the late 1980s, income volatility has increased among low-income families, stayed relatively constant among middle-income families, and decreased among high-income families. We also find evidence of adverse effects of income volatility for parent and child wellbeing. Controlling for income level, greater income volatility is associated with higher parent stress, lower child school engagement and activity participation, and higher rates of child expulsion/suspension. These associations are moderated by income level, occurring primarily among families in the lowest income quintile.

Implications: Protecting against income volatility or assisting families with smoothing income or consumption are not key goals of U.S. safety net programs. Instead, income and work support programs are designed principally to increase employment and reduce dependence among poor families. Certain program features, such as income limits and high marginal tax rates, actually have the potential to increase income volatility particularly for the working poor on the margins of eligibility. This study suggests that income stability may be an important component of family well-being and children’s development and a worthy goal of the social safety net.