Economic insecurity is the threat, or risk, of inadequate income. Conversely, economic security is the assurance of adequate income through mitigation of that risk or its consequences. However, it may be easier to understand economic security and insecurity when contrasted with economic status.
Economic status is visible and measurable, reflecting how much a person earns, owns, saves, and consumes. That status is amenable to evaluation in many ways. For example, one might ask whether a person earns enough to manage the basics of daily living, or colloquially, to “make ends meet.” Researchers and policy makers disagree on what is “enough” or what “ends” entail in terms of basic needs like food, housing, education, and health care, or what comprises a good, or sufficient, status. Regardless of the definition of status, it is measured at a point in time—for instance, whether a person can pay rent in a given month.
Economic security, on the other hand, is much less tangible or measurable, reflecting the more expansive concept of whether a person will be able to maintain an adequate standard of living in the wake of an event such as job loss, illness, or natural disaster. The idea of economic security depends on two factors: the likelihood of the at-risk event, or “shock” (e.g., job loss, illness, or natural disaster), happening and the level of protection in place should the event happen or should the shock occur. Economic security is therefore composed of both risk exposure and risk protection. Given that it relies on unforeseen future events, economic security is often considered over a longer and undefined time horizon, such as whether a person can pay rent if they become unemployed.
Consider two employees of a company: the chief executive officer and the janitor. By most measures, the CEO is in the much riskier job; about half of CEOs who depart their position for any reason are fired or forced out of their jobs. Yet CEOs are not economically insecure. Not only do they make significantly more money than the janitor but they also probably have an employment contract that compensates them even if they are fired (often called a “golden parachute”). In addition, a high-earning CEO has very likely accumulated credit and assets; their wealth is a de facto form of insurance to borrow against or sell. The janitor, on the other hand, may be less likely to be fired but also much less likely to have adequate income, a severance, savings, or immediate alternative employment options. And with a low income, the janitor is much less likely to have significant assets or access to credit. The janitor has a substantially higher level of economic insecurity, even if the CEO has more risk in terms of job stability.
Thus, economic security is not just income but precarity. The two are correlated, but not necessarily uniformly or evenly across persons and positions.
Measuring economic insecurity remains difficult. Researchers attempt to measure protection against risk through assets such as savings and insurance. Although they seek to predict the likelihood of a particular negative shock, the true extent of risk, and the true extent of protection, is often not known until a shock occurs. On top of this uncertainty, not all shocks are similar. A hurricane causing a business to close for two months is a shock to its workers, but of a different degree than the shock to workers if the business closes permanently. Similarly, a business closing permanently is a shock to its workers of a different degree if it is easily substitutable (like a restaurant in a mall food court) versus if it is the largest employer in a small city (like a manufacturing plant).
Since the 1930s, the U.S. has achieved substantial gains in economic status. Per capita Gross Domestic Product (GDP), or the total size of the U.S. economy divided by the number of people in it, rose in real terms from $10,081 in 1940 to $58,164 in 2020. On average at least, people in the U.S. are better off now and have grown steadily better off over time.
As a part of being better off, people in the U.S. consume more every year. For example, during the Great Depression, between 1930 and 1933, consumption spending decreased each year by at least 2.2 percent. Since then, in no two consecutive years has consumption spending in the U.S. economy decreased. Only in four years (out of over eighty) has consumption decreased relative to the prior year.
Perhaps the most salient measure of progress is that households own more goods than they ever have. Table 1 and Table 2 below show data on ownership rates of common household items for recent years.
In terms of larger assets, between 1960 and 2018, the portion of households that owned at least one car increased from 78.5 percent to 91.5 percent, while the portion owning at least two cars nearly tripled to 59 percent, and the portion owning at least three cars increased almost nine-fold to 21.9 percent. In a similar vein, the proportion of U.S. owner-occupied households increased by over 50 percent between 1940 and 2020, from 43.6 percent to 67.4 percent.
The increase in access to basic consumer goods—goods that many would consider necessities—is clear evidence of an improvement of economic status, but how much it says about economic security, or how much economic security these goods confer, is unclear. For instance, most individuals, when asked if they could weather an unemployment spell or the illness of a partner that forces them to quit their job, are unlikely to bring up that they have a refrigerator or cell phone. Security comes from larger assets, such as cars or homes. As to the former, automobile ownership is at an estimated 91.5 percent, but cars as assets provide weak security because they are (except in rare cases) constantly depreciating in value. Homeownership, as previously noted, was at 67.4 percent in 2020.
Many of the averages in ownership of goods mask differences across key demographic groups. In 2018, for example, 94.4 percent of the U.S. population had access to internet at the speed of 25 Mbps—an adequate speed for most users—while only 77.7 percent of those in rural areas and 72.3 percent of those on tribal lands had such access.Of U.S. households, 91 percent owned a car in 2019, but households of color were three times as likely to be without a car than White households. Overall homeownership increased to 67.4 percent in 2020, but Black homeownership was only 46.4 percent, Hispanic homeownership was 50.9 percent, and Asian (which includes Native Alaskan and Native Hawaiian) was 61.0 percent, compared to 75.8 percent for non-Hispanic White individuals.
Hence, even as the average household earned, owned, and consumed more, many in the U.S. may still be economically insecure.
To assess economic insecurity (and the risk of inadequate income), we present three discussions of income in the U.S.: poverty, income trends, and income volatility.