JPMorgan Sounds the Alarm on Inequality

JPMorgan Sounds the Alarm on Inequality

When even the big banks start to worry about inequality, you know something is seriously wrong.

Inside the Chase tower, Dallas (Kent Wang / Flickr)

The first study from the newly established JPMorgan Chase Institute, released yesterday, offers an intriguing “big data” glimpse at economic insecurity in today’s U.S. economy. “Weathering Volatility: Big Data on the Financial Ups and Downs of U.S. Individuals” uses a stratified sample from the account and transaction data of almost 30 million JPMorgan Chase customers. Alongside credit information (monthly payments, outstanding balances, delinquencies) for the same individuals, the JPMorgan data measures variation in income and consumption, over a short and recent time span, with rare precision—and a notable tone of angst.

At a sample size of 100,000, the JPMorgan data set boasts nearly twice the sample size of the Current Population Survey (60,000 household respondents) and far exceeds the reach of the Bureau of Labor Statistics’ Consumers Expenditure Survey (7,000 households) or the various panel surveys (which have between 5,000 and 15,000 respondents). The resulting sample, broken into income quintiles (equal fifths of the underlying population), follows the structure of the Census numbers: the upper limit for its first quintile is $23,000, just over the Census/CPS threshold of $21,433 for 2013, and so on up to $104,500, the upper limit for the fourth (compared to the Census/CPS’s $106,101). But most importantly, the JPMorgan data consists of actual transactions—a much more precise and reliable measure of earning and spending than we can expect from survey respondents.

The findings, unsurprisingly, point to large swings in both incomes and consumption, both from year to year and from month to month. Seventy percent of those sampled see a swing in income of more than 5 percent from one year to the next; 84 percent see that volatility from month to month. Some of this is an artifact of the data collection (those paid weekly, for example, see their incomes bounce around just because some months have five Friday paydays and some don’t), but much of it signals the economic damage and insecurity that comes with stagnant wages, a tattered safety net, persistently high unemployment and underemployment, and raggedly unreliable work schedules.

Of interest to JPMorgan, of course, are the behavioral responses to income volatility, and the financial products (“innovative insurance or credit products“) that might be offered in response. The report devotes much of its energy to parsing the difference between “responders” (those whose changes in consumption tend to track changes in their income), “sticky optimists” (mostly higher earners) for whom consumption increases more than income by more than 10 percent, and “sticky pessimists,” for whom consumption lags behind increases in income by more than 10 percent.

Of more lasting interest is the way in which this report and dataset confirm and extend our understanding of the insecurity gap pried open by the simultaneous retreat of private labor standards and public policies—what Jared Bernstein has described as the “YOYO” (you’re on your own) economy (not altogether unrelated to that more common twenty-first-century motto, YOLO) and Jacob Hacker has dubbed the “great risk shift.” In the JPMorgan data, this emerges in the volatility of both income and consumption, which—especially for modest earners—capture the heavy reliance on EITC-padded tax refunds (big jumps in income in March and April) and the exposure to unexpected expenses.

The report finds not only that incomes and consumption are both volatile, but that they are volatile independently from one another: households face the risk of lost income, unanticipated expenses, or both. And that risk—for all but the highest earners—is accompanied by insufficient savings or assets to weather such a shock. By JPMorgan estimates, earners in the lowest quintile would need about $1,600 in liquid assets to withstand income volatility—but actual account balances average less than half that ($600). This gap is simply magnified for higher earners: in the second quintile, $2,800 is needed but only $1,400 is available; in the third, $4,800 is needed but only $3,000 is available; in the fourth, $8,200 is needed but only $6,200 is available.

These findings are important—especially considering the richness of the underlying data and their source. The data does have its limits; in the scholarship on this problem, some of the most interesting (and open) questions revolve around the historical timing and the distribution of income volatility. Covering only 2012-14, and with no greater demographic detail than gender and age, the JPMorgan data offers few insights here. But as a contemporary snapshot, drawn on a large and precise sample of income and spending, it is hard to beat.

We are accustomed, even inured, to alarm bells from scholars and advocates on the left. When the financial establishment starts getting worried—whether it’s International Monetary Fund economists concluding that inequality impedes growth (and redistribution is benign) and that unions are a good thing, Morgan Stanley worrying about the impact of stagnant wages and student debt on consumption, or JPMorgan Chase weighing in against income volatility—you know something is seriously amiss.

Colin Gordon is a professor of history at the University of Iowa. He writes widely on the history of American public policy and is the author, most recently, of Growing Apart: A Political History of American Inequality.