The Costs of Insecurity: Pay Volatility and Health Outcomes

Every day, millions of individuals rely on fluctuating financial rewards in the form of customer tips, commissions, piece-rate, and performance-based pay. While these compensation systems are increasingly common, the volatility in pay that they create may harm employee health. Based on conservation of resource theory assumptions that money is a valued resource, I propose that volatility in pay represents resource insecurity, with costs to health. Across an experience sampling study of tipped workers (Study 1) and longitudinal studies of gig workers (Study 2) and those in sales, marketing, and finance (Study 3), findings demonstrate the harmful effects of pay volatility. Specifically, pay volatility had direct or indirect effects on physical symptoms, insomnia, sleep quality, and sleep quantity. Volatile pay was found to induce a scarcity mindset, where individuals ruminate and direct cognitive resources toward remedying the source of scarcity, with worse health outcomes as a result. Neither mindfulness nor savings rate moderated the effect. Exploratory analyses in Studies 2 and 3 revealed that one's dependence on volatile pay acted as a moderator that strengthened effects. Overall, performance-based pay creates pay volatility, which is linked to psychological threat and poor physical health for employees in a broad range of industries.

Automated summary

Volatility in pay has harmful effects on employee health, leading to physical symptoms, sleep problems, and scarcity mindset. This impact is not moderated by mindfulness or savings rate, but rather strengthened by dependence on volatile pay.