Irregular Earnings of Gig Workers and the Microeconomic Perspective on Volatility

Many people view the gig economy as the ultimate in freedom—with many different types of working hours, self-selection of jobs, no formal schedules, and no corporate hierarchy. Such is the life of a gig worker. Gig workers are found in a variety of professions; these include digital nomads (freelancers), couriers (Uber, Lyft, etc.), and other forms of online employment.

The January 2020 World Bank report on online gig work shows an estimated 154 million to as high as 435 million international workers earning their income via online platforms. The growth of the gig economy worldwide suggests that the "new normal" for a growing number of people in the world is that the gig economy creates both a way to earn income and also challenges associated with unpredictability around income and cash flow.

How Gig Income Works

Gig work has a different structure than typical employment. Instead of fixed hours for a predetermined salary, for example, gig workers have set availability (when they are available to work), speed to finish (how quickly they are able to finish the work), the finished product (what they are producing), and participation in an online marketplace.

In addition, many of the factors that will impact the amount a gig worker can make are outside of their control. A gig worker (for instance, a courier) could potentially be logged in for 24 hours but receive very few orders. Likewise, a freelance worker could potentially finish the work within the time allotted but may not receive payment for weeks after submitting their work. Therefore, the income of a typical gig worker will fluctuate much more frequently than that of a full-time employee.

Although the average monthly income may appear relatively steady, the cash flow of a gig worker will vary widely. While most individuals may not be aware of this variability, it becomes very evident in day-to-day living when clients do not pay or when the online marketplace does not send payment.

Main Reasons Why Income Is Unstable

Gig workers often see fluctuations in their income based on a variety of factors, including the following:

Platform Algorithms
The manner in which platforms present workers, assign tasks, and rank profiles can change without notice. An algorithm change on a platform may result in the immediate reduction of jobs available to a worker.

Demand Changes
Demand can vary through the week, season, or month, as well as based on geographic location, economic conditions, and weather conditions. Many times, workers will see spikes in demand followed by declines in demand, resulting in inconsistent income over time.

High Competition
Most gig economy platforms are easy to join, allowing for an almost constant influx of new workers. In many cases, there are more new workers entering the market than there are opportunities for work. Therefore, the chances that your opportunity is available when you apply are reduced due to this increased competition.

Payment Delays
While the completion of a task may be the end of the worker’s obligation, it is not necessarily the end of the payment process. Many workers experience delays of up to several days or weeks after completing a task, making it impossible for the worker to access the funds until the platform posts the payment.

Stable Spending Matters More Than High Income

The main issue in microeconomics is not the amount of people’s salaries, but their pay dates. People have difficulty planning their finances due to unsteady cash flow, even if the overall value of their income appears adequate.

People want to know what their expenses will be on a monthly basis and how to properly budget for those expenditures, rather than having monthly returns that are erratic. Everyone spends money on rent, utilities, and groceries, which are all monthly expenses regardless of the individual’s source of income. Therefore, it is easier to manage budgeting when a gig worker has a small, regular earning each month than if that same individual has very little income one week but a large earning the next. People experience stress when they have fixed monthly expenses while simultaneously having an unsteady income. The goal of a gig worker is to adequately cover the cost of day-to-day bills, even during slow periods.

Why a Financial Buffer Is Essential

The term “financial buffer” refers to money set aside to help cover a lack of income for a short period of time. The primary function of a financial buffer in the gig economy is to provide the same function as a paycheck does in a regular job. If a client pays you late, for example, you would use the financial buffer to cover the period during which the client was late in making the payment. You are able to pay your rent and bills on time, even if you have not received payment.

Having even a small financial buffer can ease the impact of variations in income and reduce the need for emergency borrowing. Most gig workers build a financial buffer in the following simple ways:

By setting aside a small amount of income when they are having a good week, thereby creating a financial buffer that increases gradually instead of trying to save a large sum of money at once.
By not using their financial buffer in between payment delays; therefore, the buffer is only intended to cover delays rather than everyday expenses.
By refilling their financial buffer once a slow period has passed so they have it built up again for the next payment lapse.

How to Plan a Budget When Income Changes Every Week

Gigs often provide variable income amounts rather than the fixed weekly amount that a traditional job does. Thus, when working with gig income, budgeting does not focus on the income you are earning, but rather on which bills or payments need to be paid first.

Envelope budgeting is a great solution to this issue. Each time you receive a payment, you immediately know what that payment will cover. Some examples of categories used in envelope budgeting are:

Essential Expenses: Rent, utilities, food, and other expenses that need to be paid regularly. These expenses must always be allocated first, regardless of how much money you earn.
Taxes and Work Expenses: Even though many freelancers overlook this expense, not allocating this money at the beginning of each month can lead to many issues. It is best to allocate this money when you first receive it, especially when income is inconsistent.
Income Buffer: Money set aside for months when you will not be working as much or will not be receiving payments as quickly as usual.
Flexible Spending: Expenses that can be reduced during months when income is low. The amount allocated here is determined after accounting for essential expenses.

How to Prepare for Late Payments

Preparing for delays in income from gig work is far better than hoping they never happen. You may have completed the work but still be waiting for the payment to arrive in your bank account.

Here are several ways to reduce the stress of waiting for income:

Understand how long it typically takes for the platform or client to pay and how long delays may last.
Ensure you understand all payment terms prior to starting the gig.
Differentiate between an actual issue and a processing delay.
Have a plan in place and decide when to follow up based on the situation rather than emotions.

When a client pays late but bills cannot wait, workers manage this in many ways. Some use savings, others temporarily adjust spending, borrow from friends, or delay payments. In extreme or last-resort cases, some workers may consider short-term financial assistance from an alternate lender—such as an online payday loan provider—to address a temporary cash shortage. If borrowing is necessary, it should be limited in amount, duration, and frequency.

How to Make Calm Decisions During Cash Gaps

In the gig economy, delays in receiving income are common, and reacting too quickly can worsen the situation. Take time to assess each situation step by step instead of allowing emotions to dictate decisions.

If you experience a cash shortage, you should not feel pressure to fix everything at once. The goal is simply to make it through the gap. Try to postpone major expenses for a few days, as people generally make better decisions when they are not acting rashly.

How Gig Workers Build Long-Term Stability

Long-term stability in gig work cannot be achieved through a single rule or solution. Instead, it develops through habits that help individuals manage income fluctuations effectively.

In practice, developing stability as a gig worker may involve setting aside funds, planning allocations in advance, spending within reasonable limits, and being judicious with debt. Fluctuations in income are commonplace for gig workers; those who accept this reality and plan accordingly are more likely to remain in control of their professional lives than those who attempt to treat gig income as a fixed salary.