Bridging the Gap: How Families Use the Online Platform Economy to Manage their Cash Flow

When a family experiences a cash-flow interruption, they can adjust by spending down savings, borrowing, cutting expenditures, or generating supplementary income. With the rise of the Online Platform Economy, this last option has likely become more available. In this report, we leverage the JPMorgan Chase Institute Online Platform Economy data set, which tracks payments from 128 online platforms to 2.3 million families participating on platforms between October 2012 and March 2018, to investigate whether and how families use the Online Platform Economy as a cash-flow management tool to smooth their income. We take two converse perspectives to examine this question. First, we track the evolution of income and cash balances in the weeks leading up to and immediately following a family’s entry into the Online Platform Economy. Second, we track how Online Platform Economy participation rates and average weekly platform revenues evolve around discrete cash flow events. In total, we analyze five specific events: a family’s first entry to the Online Platform Economy, a job loss, a job gain, a tax refund receipt, and a tax payment. We find that in the ten weeks leading up to a family joining the Online Platform Economy, income and cash balances decline by 10 percent, suggesting that families turn to the Online Platform Economy when their payroll incomes are interrupted. Additionally, we find evidence that employment events catalyze changes in platform participation, especially in the transportation sector, and especially for families with male primary account holders. In contrast, tax-related cash flows—the arrival of a tax refund or a tax payment—have no effect on platform participation rates. Altogether, our results indicate that families use the Online Platform Economy as a cash-flow management tool to bridge an income gap between jobs but not during tax time. Our insights add an important dimension to discussions regarding both appropriate policy design for and regulation of these labor markets.