Are Unpredictable Work Schedules and Workers’ High-Cost Debt Connected?

According to the credit rating agency Experian, the average American owes more than $100,000 in debt. This debt includes long-term loans such as mortgages, student loans, and auto loans, all of which have interest rates of about 6 percent. It also includes Americans with low incomes, such as food and retail workers, who are increasingly taking on short-term debt to afford their basic needs before their next paycheck.

Credit cards and banks can be a source of high-cost debt through overdraft fees and credit card debt. Overdraft fees cost around $35 per transaction and can add up quickly; the average interest rate for a credit account with a balance incurring interest is about 22 percent (PDF).

Payday lenders, pawnbrokers, and auto-title lenders offer alternative financial services at a high cost to people who need short-term loans but may not be able to secure them from traditional sources, such as credit cards and banks. Payday lenders give customers loans tied to their upcoming paycheck, pawnbrokers take items such as jewelry or electronics as collateral, and auto-title lenders use car titles as collateral. Their average APRs, or annual percentage rates (interest plus fees), are almost 400 percent, around 200 percent, and about 300 percent, respectively.

Payday loans, using a pawnshop, and auto-title loans can be considered red-flag debt because of their especially high interest rates and fees. In comparison, negative experiences with a credit card or bank can be described as yellow-flag debt because their fees, while costly, are smaller.

Past research suggests that earnings levels and sudden changes in earnings are related to individuals taking on high-cost debt. This paper (PDF), written by researchers Mariana Amorim at Washington State University and Daniel Schneider at Harvard University, asks whether unpredictable work schedules are related to taking on high-cost debt for workers in food and retail jobs. The study analyzes data from The Shift Project, which contains information for almost 40,000 food and retail workers at 150 of the biggest employers in the United States between 2017 and 2019, weighted to represent all food and service workers. It also uses data on income support provided by the Temporary Assistance for Needy Families program and employee hardship funds at the included employers.

The two researchers define high-cost debt and schedule unpredictability for the workers in their study as follows:

• High-cost debt comprises one or more of the following actions:
  • taking out a payday loan
  • using a pawnshop
  • taking out an auto-title loan
  • overdrawing a checking or savings account
  • only paying the minimum amount on a credit card bill
  • getting charged a late fee on a credit card
  • getting charged an over-the-limit fee on a credit card
• Schedule unpredictability is considered a problem for workers if respondents:
  • categorize their work schedule as “variable” (as opposed to a regular day/night shift, split shift, or rotation schedule)
  • don’t know their work schedules at least 14 days in advance
  • had an on-call shift at least once in the past month
  • had a shift canceled at least once in the past month
  • had a work shift’s timing or length changed by their employer in the past month
  • had no say in their work schedule

Although this study investigates the association between schedule unpredictability and the use of high-cost debt, it does not demonstrate that schedule unpredictability causes the use of high-cost debt among food and retail workers. Other factors, such as personal circumstances or job insecurity, may contribute to both schedule unpredictability and high-cost debt. High-cost debt could be related to schedule unpredictability because it might be difficult for workers with a lot of debt to leave jobs with unpredictable schedules.

Key findings

• Food and retail workers who experience schedule unpredictability are more likely to take on certain forms of high-cost debt. This occurs regardless of how much they earn, their demographics, or their job characteristics. This includes both types of yellow-flag debt (overdraft fees and negative credit card experiences) as well as red-flag debt, such as the use of pawnshops. More specifically:
  • The likelihood that food and retail workers will take on high-cost debt increases if their schedules are unpredictable in multiple ways. For instance, if workers do not know their work schedules at least two weeks in advance and have a shift canceled at least once a month, then they are more likely to use a pawnshop than if they only experienced one or the other. This remains true no matter their income, race, industry, or seniority at their jobs.
  • Food and retail workers with highly unpredictable schedules are much more likely to take out auto-title loans or use pawnshops than workers without unpredictable schedules. The probability of food and retail workers taking out a payday loan, however, is not related to schedule instability.
• The type of high-cost debt food and retail workers incur may be related to the type of schedule unpredictability they experience at work. Being on call is associated with all forms of high-cost debt investigated in this study, while having a variable schedule is not related to taking on any form of high-cost debt.
• Financial assistance and financial literacy requirements do not alter the link between schedule unpredictability and the use of high-cost debt for food and retail workers. More specifically:
  • Some companies have employee hardship programs that provide workers with funding (usually between $500 and $5,000) if they are experiencing an unexpected event. Being employed by a company with funding for unexpected hardships does not affect the relationship between schedule unpredictability and high-cost debt for food and retail workers.
  • Some states mandate that all high school students receive financial education. Regardless of whether food and retail workers live in states where financial education is required, if they experience schedule unpredictability, then they are more likely to take on high-cost debt.
• Independent of schedule unpredictability, food and retail workers with higher incomes are less likely to use pawnshops, overdraw a bank account, or have a negative experience with a credit card. Yet workers with high incomes are still more likely to take on high-cost debt if they have unpredictable schedules. More specifically:
  • For many forms of high-cost debt, schedule unpredictability has a larger impact on the likelihood that food and retail workers will take on debt relative to their income level. For instance, an increase in household income from less than $15,000 to more than $100,000 decreases the probability of using a pawnshop by 8 percentage points. Holding income constant and eliminating all forms of schedule unpredictability decreases the probability of using a pawnshop by 14 percentage points. In other words, if everything else remains the same, increasing someone’s annual income—even by as much as $85,000—has less of an impact on the likelihood of taking on high-cost debt than making sure they have a predictable schedule.
• Schedule unpredictability may be related to high-cost debt because it results in weekly changes in earnings, making financial planning difficult. Yet the data show that changes in income may only explain a small part of the entire relationship between scheduling and high-cost debt. 
  • The authors speculate that extreme schedule unpredictability may strain workers’ relationships and support networks, make it difficult to access services or public assistance programs, or reduce employees’ ability to make informed financial decisions through added stress.

Policy and practice implications

WorkRise and the authors identify the following implications for policy and practice:

• Food and retail employers aiming to lower employees’ likelihood of taking on high-cost debt should provide them with stable schedules. Based on this study, eliminating on-call shifts, reducing shift cancelations, and giving workers more control over their schedules may be more beneficial than investing in employee hardship funds. Employer examples include:
  • Starbucks, which has committed to sending out schedules three weeks in advance to give employees stability and consistency. Walmart also uses predictable scheduling to guarantee consistent shifts for its workers and gives employees the autonomy to pick up or trade shifts on its app.
  • According to a study conducted at Gap stores in 2016, stable shift structures, worker-led shift swapping, and consistent schedules may lead to increased sales and employee productivity. In general, store managers adapted to predictable scheduling requirements but voiced a need for integrated strategies that address the root causes of last-minute or inconsistent scheduling.
• Policymakers and advocates seeking to support workers’ capacity to manage their household balance sheets should consider policies that support predictable schedules. Cities including Los Angeles, New York City, and Philadelphia have already implemented related policies. These include requiring notice for canceled shifts, restricting on-call shifts, and ordering employers to send out schedules two weeks in advance.
• If policymakers raise wages for the lowest-income workers, then service workers with all levels of schedule unpredictability might then be more able to reduce their use of high-cost debt. Extreme schedule unpredictability is less common than low wages, so changing wages may have a larger overall impact on the use of high-cost debt for all food and retail workers.
  • Last year, California implemented legislation requiring that fast-food workers at national chains be paid at least $20 per hour, and legislators in Michigan are also in talks to raise the state’s minimum wage to $15 over the next few years. Research shows that increases in the minimum wage at the state level are associated with reduced use of high-cost debt, particularly payday loans.
• More research is needed on the relationship between schedule unpredictability and high-cost debt to explore a potentially causal relationship and identify specific mechanisms.

This study finds that income, changes in income, and schedule unpredictability are all associated with the use of high-cost debt by food and retail workers. Importantly, schedule unpredictability is related to the use of high-cost debt regardless of income level and changes in income. By ensuring food and retail workers have stable schedules, employers and policymakers may be able to reduce the use of pawnshops and other forms of high-cost debt.