WorkWhile Chief Economist Alan Armen says wage shocks move through hourly workers’ budgets in weeks, not quarters, because income becomes spending almost immediately. The latest Wage to Wallet™ findings show platforms supplying 15% to 30% of income as workers try to address declining wages.
Transcript
This is Wage to Wallet, a podcast by PYMNTS in collaboration with Ingo Money and WorkWhile. We break down how America's hourly workforce powers the real economy, from paycheck to GDP. On this episode, WorkWhile Chief Economist Alan Armen tells PYMNTS CEO Karen Webster how in today's uncertain economy, smoothing the flow of wages may prove one of the most underappreciated tools for sustaining growth.
Karen Webster:Hey Alan, thanks for joining me today. I'm looking forward to getting your take on the latest Wage to Wallet report that we published with you at WorkWhile. So looking forward to digging in. Thanks for taking the time.
Alan Armen:Yeah, of course. Super excited.
Karen Webster:So the um the work that we do together really tries to triangulate a lot of data sources to better understand the impact of wage volatility for hourly workers in specific wage categories with GDP, their ability to spend since those consumers averaging about $40,000 to $50,000 in annual income do consume all of what they, all of what they earn or most of it. So this month we determined that there was a wage decline overall of about eight-tenths of 1%. Now that implies a $14 billion annualized drop in spending among that category of worker. It's hypothetical, so obviously we're looking at the potential. But let's sort of hypothesize that that is in fact the reality. How quickly do these kinds of shocks to wages, this kind of decline, find its way into the economy itself?
Alan Armen:Yeah, so you know, really the transmission is very fast. Um, you know, we're talking weeks, not quarters. Um, the reason it matters is how these households live. I mean, if you think about it, they typically have thin savings, you know, variable work schedules, and above average reliance on credit, right, to bridge cash flow gaps. And that means that means the income this week uh often becomes spinning this week, right? How their income changes um is going to affect what they do on a daily basis, how they, you know, how they navigate expenditures. Um it's not a big buffer. Uh so when wages wobble, you see the impact in the same monthly billing cycle on the grocery basket, on the gas tank, on their you know, local restaurant tab. Um and uh, you know, and I think overall we're systematically underestimating um how these effects propagate too, right? Um how so?
Karen Webster:How so?
Alan Armen:So, you know, when you think about it, the labor economy workers they're heavily concentrated in sectors like retail, food service, logistics, and local services. So when they pull back, it hits exactly the businesses that employ them, right? And there's this feedback loop, right? Like um, yeah, they spend less, and then those businesses, right, that rely on their consumption have less business, and then they have less leverage to employ. They have less revenue, they have less ability to pay. And um, it's just this cycle, right? These multipliers that feed through the economy.
Karen Webster:How volatile are wages based on your observation across many, many, many millions of workers?
Alan Armen:Yeah, I mean, there's, you know, there's uh intense volatility. I mean, especially if you think about uh the hourly workers that are working on on platforms, right? Um uh, you know, whether it's you know, uh Uber, WorkWhile uh DoorDash, um, you know, there's intense volatility uh across the days of the weeks, the weeks of the month. Um and uh, you know, we try to isolate the trends, of course, but um, you know, if you think about the exposure that um hourly workers have to volatility, um, especially as demand fluctuates, um it's it's pretty large.
Karen Webster:We also observe that millennials in Gen Z really observed um more than three-quarters of that wage pullback, so of that wage decline. Are there specific structural factors that you think explains kind of their heightened vulnerability? And if so, what should employers be doing in response?
Alan Armen:Yeah, it's a striking story, right, for these generations. And I think there are a few structural reasons that come to my mind. Um, there's job mix and seniority. Um, younger workers are more likely to be in hourly variable schedule roles in retail, hospitality, warehouses, and delivery. Um, that's exactly the labor economy footprint. Um, and they have less tenure, less bargaining power, so they tend to be first in line for cuts, right? Cuts to hours, uh, cuts to pay. Um, and there's also their balance sheets, right? Uh millennials and Gun Z generally have less accumulated wealth and more non-housing debt. Uh, student loans, auto cards, uh so every dollar of wage volatility hits a thinner cushion. And that's how I think about it. When we look at wage to wallet, um, that's showing that card balances for labor economy workers are averaging 22% of annual income.
Karen Webster:That's a heavy burden for the, but but employers are trying to manage their own balance sheets. And so, you know, how do you strike the right balance, recognizing that all of what you said is true? We see that reported in the data. Yet employers may not have many options.
Alan Armen:Yeah, you know, what I would recommend to employers is that um, you know, they think about how do we stabilize schedules, uh, not just pay rates. Um, that's one thing that, you know, we think we can help employers with through WorkWhile offering tools to uh predict demand, um, set schedules, um, and give the best pay rates uh for you know um filling demand. That's one thing. Um and invest in progression too, right? Um, how can you give these workers clear paths from more volatile entry-level roles into more stable senior positions with training and internal mobility?
Karen Webster:One of the things that we observed too, Alan, which I think was sort of an interesting dichotomy, is that job security sentiment really plummeted. Um, even as the overall labor economy sentiment, I don't know if it really edged up, it more or less stayed the same. But yet there's a lot of concern about individual job security. I'm curious to get your thoughts on how you process that really significant dip month over month.
Alan Armen:Yeah, so what that report really highlights to me is the split between macro comfort and micro anxiety. Um, to me, it says, hey, I think the economy and my employer might muddle through, but I'm less sure I will keep my hours and my paycheck. Um, they're not necessarily doubting the survival of their company or the overall job market, right? They're not expecting this crash, but they're doubting their individual placement, their shift, their schedule, their overtime. Um, and I think that that makes sense, just you know, given you know, softer deterioration and jobs data, I mean, it's a mixed bag that you know we've seen across the you know, quote unquote real data and the soft data uh, you know, that's been coming out. But when you see softness, um, I think the first thing that comes to workers' mind is, okay, wait, am I next, right? Am I personally on the line?
Karen Webster:And do you think that that sentiment is related to how stable they think their own employer is? I mean, it may not be that the economy overall they're concerned about, but maybe within their own environment, within their own employer, they're not so sure.
Alan Armen:Yeah. And I I think it's, you know, it's not necessarily that they think their their employer is going to go out of business, but they're thinking their employer might have to make hard decisions.
Karen Webster:Right, yeah, right, which is for them kind of the same, the same outcome. Um they're still standing, but but they're not. Um, you know, what's interesting is that we're seeing that, you know, this category of worker um really does um represent a growing part of the economy, of course, but but it's about 15% to 30% of income is gained from platforms that allow them to match their capacity to demand for the skill sets that they bring. What do you see as the role for these digital platforms in helping to stabilize what is clearly financial uh fragility for this particular workforce that we call the labor economy?
Alan Armen:Yeah, so they certainly function as partial shock absorbers. Um, you know, we've seen quotes from you know some analysts and economists who think of gig work as the new safety net, right? Like when, you know, when there's a shock, when there's a negative shock to the economy, um, it's not providing workers a place to find income of last resort. Um, but also more and more they're becoming platforms of income of uh of full resort, if you will. Like they're uh they're becoming more and more uh places where workers are finding full-time uh work opportunities, not working with an employer full-time, but working um, you know, at a full-time utilization rate. Um so when you look at these digital platforms, they're clearly functioning as an income smoothing tool at the very least. And I think as payments' own uh research has shown, about 43% of total income can come from gig or side work. Um and for Gen Z and for those earning under 50,000, um, that can reach an even larger fraction. That's extraordinary. That means households are using platforms to plug gaps with their primary wages or um or when their hours are falling short. So um, you know, I see them helping in three ways. One is speed, right? You can ramp up hours in response to a shock. You have flexibility, you're not limited to a single employer or sector, so you you can get outside of a of a particularly risky area and diversify, and you have really fast access to earnings, right? That's huge. That's huge for people to be able to get in like near near real-time pay.
Karen Webster:And and you know, sadly, not not all platforms pay instantly, but I think we we do observe that that that is possible, and that certainly does make a huge difference in the financial viability of this workforce. I mean, there are lots of things that I think this new um capability, you know, these gig platforms providing this workforce provides. But there's also this issue of benefits and making these capabilities interoperable, um, having skill sets that are recognized and documented so that there is more opportunity for workers to be placed in these platforms, matching their skills exactly to the to the openings that exist. How far are we in realizing those kinds of capabilities that would help this workforce even even more?
Alan Armen:I think we're making a lot of headway. Um and it worked well, for example, with something that I'm very proud of is that for a number of years now, we've had um a free telehealth benefit with a partnership uh with a company called CureAI, uh, where our workers can get uh free telehealth um consultation. Um and you know, that's that's been a big stepping stone. Um, as we think about broader platforms, um, you know, we want to see more of that. We want to see you know more of um how do we how do we support these workers, not only through work opportunities, but through those kinds of healthcare access opportunities through training. Um again at workwall, that's another big focus for us is training and also um how do we make skill sets portable? How do we you know basically create like a portable uh uh resume, right, for workers to document like their journey as well.
Karen Webster:Alan, you're WorkWhile's chief economist. Congrats on that recognition. That's awesome. Um so you're you obviously have access to a lot of data and you and you look at a variety of different inputs as signals to how this labor economy is going to evolve. We're wrapping 2025. As you think about 2026, what are some of the telltales you'll be looking for with respect to really understanding how the labor economy will function and perhaps stabilize in the year ahead?
Alan Armen:Yeah, so I'm gonna be looking at a few different uh areas. One is wages and hours, so that's more of the micro side. Uh, you know, through our wage to wall wage to wallet report, um, we're gonna be looking at the month-to-month uh wages. Um, how are those, uh, how are those evolving? Um we'll also be looking at hours worked, demand, cancellation rates, how much more volatile is demand getting over time? Um, we'll be looking at job security, sentiment, and behavior. Um, and uh, you know, finally, um, you know, credit uh indicators. So again, within wage to wallet, tracking the share of workers evolving credit, the size of those balances. Um that's that's how I'll be looking at the posts of these workers um over the next six months. And we want to we we want to see some improvements, right? We've been we saw some softness in the last report. Um, and we want to see workers have more um have a rebound in wage growth. We want to see them have a rebound in confidence uh looking ahead.
Karen Webster:And I think that that's so important because sentiment is you know, can be measured lots of different ways. But I think what we're trying to understand is how confident are these workers in their ability to basically have demand for what they do match their their supply of avail of available hours to uh to put toward that demand. And um, there's a lot that goes into it. So I'm looking forward to um seeing how that unfolds as well in the in the year to come. Alan, thanks so much for your time.
Narrator:That's it for this episode of the PYMNTS Podcast: The Thinking Behind the Doing. Conversations with the leaders transforming payments, commerce, and the digital economy. Be sure to follow us on Spotify and Apple Podcasts. You can also catch every episode on pymnts.com/podcasts. Thanks for listening.