This is the inaugural report of the OECD Observatory on Social Mobility and Equality of Opportunity, and it is most timely given the rising concerns about economic insecurity following the onset of COVID-19 and the subsequent cost of living crisis, and with the digital transformation of economies underway. These concerns are well placed, since economic insecurity is associated with a raft of negative well-being outcomes, including poor health, anxiety, food insecurity and delays in childhood development. Understanding who is most at risk of economic insecurity is crucial for designing policies that support people to reduce and manage their risks.

Changes in income are a routine part of life and often signify milestones like entering the labour market, career advancement, caring for children or retiring. While some income shifts can be beneficial, not all of them contribute to people's overall well-being. Income losses can have far‑reaching negative consequences on people’s lives and on society, especially when precipitated by unexpected events such as job loss or illness. Concerns about job losses and working hours rose recently with the onset of COVID‑19 and even though labour markets are currently tight in most OECD countries, long-term structural changes – including digital transformation, globalisation and population ageing – mean that some people perennially face the risks of job insecurity.

Incomes vary over time as people enter the labour market and progress in their careers, take time off work to care for children or other family members, and retire. But not all changes in work patterns are predictable or welcome. Unexpected job loss, variable working hours or illness can create income shocks that are difficult to manage. In European OECD countries, it is common for people’s employment status to change multiple times per year, and for the most part, these changes do not result in sustained income growth. Being exposed to frequent changes in income is linked with stress, anxiety, poor health and worse childhood development outcomes; this is particularly troubling as income instability is concentrated among people who are susceptible to poverty, such as those who are unemployed or lack job security, or from single-income or young households.

When individuals have highly unstable incomes and do not have the financial means to cope, they are said to be economically insecure. Economic insecurity is thus marked by an exposure, and a vulnerability to income instability. While low-income individuals are the most vulnerable to income shocks – in terms of having insufficient liquid assets to draw on – almost 50% of people on middle incomes in working-age households and 20% of higher income earners are at risk too. Given the frequency with which people experience income shocks, and the inadequacy of people’s financial buffers, economic insecurity affects one in six people in working‑age households in European OECD countries. The burden of economic insecurity falls predominantly on the unemployed and insecure workers, who are likely to face a heightened risk of economic insecurity going forward, given the digital transformations occurring in labour markets, which appear to affect people disproportionately and negatively in occupations with already high rates of economic insecurity

The risk of economic insecurity is ever-present in European OECD countries – as individuals often face employment changes and income shocks and may lack sufficient liquid assets to cope with them. The burden of economic insecurity falls heavily on those who are disadvantaged and in a precarious position – people on low incomes, the unemployed and insecure workers – but the consequences are felt more broadly across society. Governments have a role in reducing people’s exposure to adverse economic events and enhancing their ability to manage risk. Social benefits, in particular, play an important role in reducing income instability – notably when they are responsive to changes in people’s circumstances, which can vary dramatically from month to month. In addition, policies that support financial literacy and help people to build their savings and manage debt are important for financial resilience and well‑being, especially in constrained fiscal environments. More broadly, policies should work in concert to reduce the risks of economic insecurity.