Academic journal article Family Relations

Patterns of Income Instability among Low and Middle-Income Households with Children

Academic journal article Family Relations

Patterns of Income Instability among Low and Middle-Income Households with Children

Article excerpt

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The recent U.S. economic crisis has exposed millions of households to volatile economic circumstances triggered by job loss, reduced work hours, falling home and investment values, and cuts to social assistance programs. Several studies have found that income instability has grown in the United States over the last few decades, particularly among low-income households (Dynan, 2010; Dynan, Elmendorf,& Sichel, 2008; Gottschalk & Moffitt, 2009; Keys, 2008; Leete & Bania, 2010; Newman, 2008). For some households, these economic changes are temporary income shocks from which they will recover. For others, the insecurity of the broader economy only exacerbates long-term or persistent patterns of financial instability.

Early research on income and poverty pointed to the importance of empirically assessing the dynamic nature of individual and household economic circumstances (Bane & Ellwood, 1986, 1996; Duncan, 1988; Stevens, 1994). Yet outside of research that documents general trends in earnings volatility, remarkably little is understood about the patterns and correlates of income instability for households with children. Such descriptive information is a crucial step toward understanding the scope of the problem, and whether policies and programs could be better designed to improve overall economic well-being. For example, if income instability is present and distinct from overall income, households may benefit from programs that assist them to smooth consumption in times of instability, in addition to increasing income levels. Indeed, one of the challenges with certain income support policies is that they can ''create'' income instability through income eligibility thresholds, which can lead to households losing benefits abruptly.

Households living on the margins of poverty and struggling to make ends meet may be particularly vulnerable to economic fluctuations (Gosselin, 2004b). Because low-income level is often coupled with little to no savings and limited access to low-cost credit (Blau, 1999; McKernan & Ratcliffe, 2009), these households may have few options to compensate for losses when income shocks occur. Middleincome households may also be vulnerable, with growing income inequality in the United States at its highest in 45 years (U.S. Census Bureau, 2012). Income level and mean net worth of middle-class households has been steadily declining since 2000 (Smith, 2012; U.S. Census Bureau, 2012). For such households who may have relatively more resources upon which to rely, income instability could deplete savings and thereby increase the risk of falling into poverty. Any resulting lapse in poverty could be challenging and difficult to escape subsequently (Acs & Zimmerman, 2008; Gosselin, 2004a).

This study describes the experiences of income instability for low- and middle-income households with children over a period of nearly 3 years and informs the following questions: Does intrayear household income statistically significantly vary over an extended period? If so, are there distinct patterns of income instability experienced by households? Finally, what household characteristics are associated with these distinct patterns of income instability?

Income Instability and Household Well-Being

It is well established that household economic resources influence children's outcomes across developmental domains. Income instability, like income level, may increase economic hardship and parental stress (Conger,Ge, Elder,Lorenz,& Simons, 1994), disrupt parent-child interactions (Bronfenbrenner & Morris, 2006), and reduce parents' ability to invest consistently in their children (Becker & Tomes, 1986). Instability could be more or less detrimental depending on overall income level, the trend of income over time, and the events leading to income changes (see Hill, Morris, Gennetian, Wolf, & Tubbs, 2013, for a theoretical overview). …

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