Inequality in the Credit Sector and Its Widespread Impact
### Temporary Workers Face Significant Barriers in Accessing Credit
Temporary workers in Europe and the United States face several challenges when it comes to securing credit, which can have a profound impact on their financial well-being. These challenges stem from factors such as irregular income, employment classification, and a lack of benefits, making it difficult for temporary workers to access essential credit products.
**Irregular Income and Payment Delays**
One of the primary issues faced by temporary workers is the unpredictability of their income. Temporary workers often receive payments on varying schedules, whether hourly, project-based, or irregular, making it challenging to predict and manage their finances. Additionally, companies may face administrative delays and complex approval processes that further delay payments to temporary workers [1][3].
**Employment Classification and Stability**
Temporary workers are classified differently from permanent employees, and this classification complexity can lead to uncertainty about income stability. This uncertainty is a key factor in credit approval, and lenders may view contingent or temporary employment as higher risk, limiting access to credit or resulting in higher interest rates [5].
**Limited Access to Credit Products**
Because of inconsistent earnings and less traditional employment contracts, temporary workers often fail to meet standard credit underwriting criteria. Many lenders view contingent or temporary employment as higher risk, limiting access to credit or resulting in higher interest rates [5].
**Lack of Benefits and Social Protections**
Temporary workers frequently lack access to benefits such as paid family leave or health insurance subsidies, which permanent workers may have. This exacerbates financial vulnerability when credit is needed for emergencies or healthcare costs [2].
**Impact on Financial Well-Being Compared to Permanent Workers**
The unpredictability of income and delays in payment can create cash flow problems for temporary workers, making it harder to meet living expenses or repay debts on time [1][3]. Temporary workers may resort to borrowing with less favorable terms or from alternative lending sources with higher fees, further straining their finances [5].
Difficulty accessing credit limits temporary workers' ability to invest in opportunities like education, housing, or business ventures, perpetuating financial insecurity and stress. Without workplace-provided insurance or paid leave, temporary workers rely more heavily on credit during crises, increasing debt loads and reducing long-term financial resilience [2].
In contrast, permanent workers benefit from more predictable incomes, access to employer-sponsored benefits, and often stronger credit profiles, which facilitate better credit access and more stable financial conditions.
The impact of reduced credit access is more pronounced on young temporary workers, as temporary work is often concentrated among this demographic, who need credit access the most. People who transition from a temporary to a permanent job are significantly more likely to become homeowners within the first two years [6]. Cars owned by temporary workers are worth about 30 percent less compared to those owned by permanent workers [7].
The rejection rates are higher in occupations where it's harder for the lender to know who's a good credit risk and who's a bad credit risk. Lenders in the U.S. view temporary workers as riskier borrowers than permanent workers [8]. Many people require sufficient loans to afford major life milestones like buying a house, attending college, buying a new car, or launching a side business. Temporary workers in jobs with varying job-loss risk, like agricultural labor or food preparation, have a greater chance of getting their mortgage applications rejected compared to temporary workers in jobs with a more consistent job-loss risk, like teaching [9].
Overall, the challenges in accessing credit for temporary workers stem from income irregularity, classification, and a lack of benefits, and these challenges significantly undermine their financial well-being compared to permanent workers [1][2][3][5].
Temporary workers in business may struggle to access essential personal-finance products due to factors such as irregular income, employment classification, and a lack of benefits [1][3]. Because of inconsistent earnings and less traditional employment contracts, temporary workers often face higher interest rates or even rejections from traditional lenders, limiting their ability to invest in opportunities like education, housing, or business ventures, further perpetuating financial insecurity and stress [2].
