More than our healthcare system is being ravaged by COVID-19. The virus is also taking a toll on hourly workers.
A Branch survey of more than 1000 workers in the United States documented the significant impact of the virus outbreak for both hourly and salaried positions. There are things that employers, banks, and even individuals can be doing now, and as social distancing eventually ends, to help lessen this negative fallout.
COVID-19 Takes a Toll on the Hourly Workforce
Topline findings show that 30% of employers have shut down at least temporarily, with 59% of hourly workers (out of 909 surveyed) experiencing reduced hours, unpaid leave, or job loss. It appears hourly workers in the restaurant/food service industry have been most impacted with 78% experiencing reduced hours or unpaid leave. Hospitality and retail was the second most-impacted sector with 68% of workers reporting a reduction. Despite this loss in income, over half of employees surveyed (53%) were hesitant or had declined to apply to new jobs because of fear of exposure to COVID-19.
Because this survey was conducted on March 31st, numbers have likely accelerated.
Deepening Financial Health Concerns
The most recent Federal Reserve survey on emergency savings found that roughly 40% of Americans could not source $400 cash in an emergency. That number is much worse for hourly workers.
In fact, a survey of over 3,000 hourly workers conducted by Branch back in 2019 found that over 75% of respondents reported having less than $500 saved in an emergency fund, with 40% admitting they had $0 saved.
Under normal circumstances, small, unexpected expenses, such as a car repair or broken home appliance, can already be a financial hardship. The circumstances brought about by COVID-19 are anything but normal, which makes it no surprise that hourly workers, who typically cite home/rent affordability as their top concern, are now concerned about affording even shorter-term expenses, such as groceries and utility bills.
The Way Forward: Organizations Must Reduce Friction for Aid
The good news is that many government and municipal officials, employers, and organizations are rising to the challenge to help hourly workers in their time of most acute needs. For example:
- Many credit card issuers are allowing customers to skip their minimum payments interest and late fee free.
- In many states, utility companies have agreed to stop shutting off utilities for nonpayment.
- Many school systems have switched to “grab and go” schemes to keep kids fed who normally rely on school lunches, though some have decided to suspend this as food prep workers have begun to test positive for the virus.
- Across retail, healthcare, delivery, and transportation industries, employers are not only increasing hiring of hourly workers to meet the demand for their essential services but also ramping up benefits like bonuses and higher pay as a result.
- The U.S. government and philanthropies are working on various forms of cash assistance.
But while this may sound great in theory, to help these hourly workers when they need it the most, organizations need to do more than provide relief – they need to make that relief frictionless to obtain.
“Friction costs” refer to the speed bumps and snags people hit while engaging with a service. People can be deterred from taking action by seemingly small barriers – particularly at a time they’re already feeling the stress of increased burdens from the virus.
Using the aforementioned examples, friction costs to obtain the relief could include the following:
- While many credit card issuers, auto lenders, and mortgage servicers have said they would allow people to skip payments interest free, this highlights the follow-on need to communicate the mechanics of this to front-line service representatives, integrate it into their digital banking solutions, and guarantee to those in need that their skipped payment won’t affect their credit score.
- Utility companies are letting customers set up deferred payment plans, but it’s unclear what these plans will look like, and whether customers will be defaulted into them, or whether they’ll need to spend time on hold and negotiating a with customer service representative.
- Even with the fastest of hiring processes, hourly employees may experience delays in-between employers before they can start earning again. There’s also uncertainty around how long these higher wages and traditional benefits will last, with few employers offering tools that help hourly workers manage expenses, unexpected emergencies, and fluctuating paychecks between pay cycles.
- Forms of cash assistance are either means-tested or require applications. Either approach could introduce friction-costs that reduce uptake, as evidenced by the 3.7 million people in the US who are eligible for but not enrolled in Medicaid or SCHIP, or the $1.9B in unclaimed EITC each year in the state of California alone.
Organizations need to seek not just to provide relief, but to decrease the burden on the hourly worker to identify, request, and obtain this relief. While designing programs and aid for hourly workers, organizations should ask themselves:
- Do we know who needs help, such that we can default them into receiving it?
- Are those who need help in a position to exert the effort needed to complete this process?
- Have we simplified this form as much as possible, and only asked for truly necessary information?
- Have we made this information, or this aid, accessible in an environment and medium that’s relevant to those who need it?
Stable Individuals Can Maintain Pre Existing Budgets
At a time when so many habits have been disrupted, there is a ripe opportunity to assess and re-organize budgets. However, what would it look like for individuals whose income has not taken a hit to hold their budgets steady in order to be generous to hourly workers experiencing decreased income?
- Instead of spending less than usual dining out, individuals could order take-out to support hourly workers in local restaurants, and generously tip delivery drivers.
- Those whose regular cleaning staff can’t come into their house could still consider paying them.
- Instead of skipping their normal morning latte from their favorite coffee shop, individuals could consider dropping by to order it to-go or purchasing coffee beans from the shop to brew at home.
- Those who regularly patronize a fitness studio could commit to paying for their online offerings or consider buying a class pack to use later when the studio re-opens.
These individuals’ incomes can afford the expense, but hourly workers’ incomes can’t afford to lose it.
Accelerating Recovery Post-COVID-19
Organizations and individuals can act with intention now, decreasing friction costs and holding budgets stable, to do their part to minimize the hardships to hourly workers due to COVID-19. However, it is also important to think ahead about how to best support these workers when the COVID-19 threat passes. These hourly workers will likely be far behind on utility and debt payments, and not all of them will immediately be able to return to their normal number of working hours, or even their jobs.
Forgive, gradually re-introduce, and align payments:
Credit card issuers, auto-lenders, mortgage servicers, and utility companies could consider a more gradual re-introduction of payments, continuing to offer grace to those whose income is not yet restored, while reintroducing payments to those whose income is restored.
Even so, for payments that can’t be forgiven, these institutions ought to consider proactively working with individuals to align their payment due dates with paydays. This would allow individuals to pay their bills first, rather than having to budget through the course of their pay period to be able to afford bills that come later in the pay period.
Strategize now to support rebuilding emergency savings
While many hourly workers are likely going to dip into their emergency savings now, the resumption of work as the COVID-19 threat passes provides an opportunity to begin building emergency savings back up. Or for those who had no emergency funds saved, it will be time to build emergency savings for what may be the first time. Employers and organizations can play a pivotal role by elevating financial wellness tools and resources that can help employees build emergency savings. While these emergency funds will not be the sole answer to building financial resiliency post-COVID-19, they are an important first step.
Efforts like the BlackRock Emergency Savings Initiative are working to design innovative tools and scale behavioral science-based strategies to expand the savings options available to financially vulnerable Americans. As part of this initiative, the Common Cents Lab is partnering with Mastercard and Branch to tackle these emergency savings issues. Leveraging these programs and organizations can help, as can a commitment to designing science-backed solutions that support real human behavior.
When the time comes to save again, in a climate where people recognize more than ever the value of emergency savings, we will be ready to help them. Will you?
Allison White is a Behavioral Researcher at the Common Cents Lab, which focuses on creating and testing solutions that aim to increase the financial well-being of low- to moderate-income people living in the United States.
Atif Siddiqi is the founder and CEO of Branch, the challenger bank that partners with employers to help working Americans grow financially.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million commitment to help millions of people living on low- to moderate-incomes gain access to and increase usage of proven savings strategies and tools—ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by their Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multi-layered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step towards long-term financial well-being.