Functional Unemployment Drops While Overall Earnings Decline, According to LISEP

While some low-wage workers are moving out of poverty, those in the middle are squeezed

July 16, 2021

For Immediate Release

WASHINGTON, D.C. — More Americans moved out of the ranks of the “functionally unemployed” and into living-wage jobs for the month of June, according to an analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP), with the bottom 25% of earners posting significant gains in real wages. But unfortunately for the middle class, real median earnings as a whole fell, with earners at the 75th percentile losing more than 2.0%.

“With the rapid reopening of the economy, it’s definitely a sellers market when it comes to lower wage jobs, with workers being the ultimate beneficiary in terms of higher wages, more hours, and better working conditions,” said LISEP Chair Gene Ludwig. “But regrettably, middle-income families have not enjoyed the same benefits from the strengthening economy.”

LISEP issued its monthly True Rate of Unemployment (TRU) for June in conjunction with the quarterly True Weekly Earnings (TWE) report for the second quarter of 2021. TRU is a measure of the functionally unemployed -- the jobless, plus those seeking but unable to secure full-time employment paying above the poverty line. TWE is a measure of real median weekly earnings after adjusting for inflation, and differs from the data issued by the Bureau of Labor Statistics (BLS) through inclusion of all members of the workforce, including part-time workers and the unemployed.

Ludwig notes that while individually both TRU and TWE offer signs of optimism for a recovering economy, combined they signal concerns for a critical sector: middle-income Americans.

“Of course high-income Americans always have, and continue, to do well, and it is great to see some marginal gains by low-income Americans,” Ludwig said. “But now it is the middle-income families that are getting squeezed.”

At 23.1%, the composite June True Rate of Unemployment dropped 0.6 percentage points compared to May -- an indication that more low-income workers are moving into living-wage jobs. However, demographically only White workers saw an improvement, dropping from 21.8% in May to 21.3% in June. The TRU for Hispanic workers increased, from 26.8% to 27.0%, with Black workers jumping from 28.4% to 29.2%. Both women and men saw improvements, with the rate for women dropping from 28.1% to 27.8%, while the TRU for men dropped a full percentage point, from 19.5% to 18.5%.

TWE, an overall measure of inflation adjusted median weekly earnings, tells yet a different story. For the second quarter of 2021, all major demographic groups -- with one notable exception -- saw a decline in real weekly earnings. Overall, the median worker saw a 0.5% drop in weekly earnings, from $821 to $817, with Black workers seeing the biggest drop at 1.2%, from $657 to $649. White workers saw a 2.0%% decline, from $933 to $915, while Hispanic workers enjoyed a 3.1% increase, from $644 to $664. Men and women both saw a drop in TWE, by 1.1% and 1.7%, respectively.

However, the bottom 25% among earners saw their earnings jump by 3.1%, $474 to $489 a week, thus contributing to the overall drop in TRU as these workers moved into living-wage jobs. Unfortunately, the gains in wages were only for those in the bottom of the distribution. Not only did earnings at the median go down, but earnings for those at the 75th and 90th percentiles also dipped, by 2.1% and 0.8%, respectively.

“An overall drop in True Weekly Earnings is disturbing, particularly when we know good jobs are out there -- along with plenty of people who want them. But we are certainly encouraged to see more low-wage earners move out of poverty,” Ludwig said. “This is a perfect example of why we need a significant investment in human infrastructure: to better match the skills and needs of our workers with the needs of employers.

Functional Unemployment Drops While Overall Earnings Decline, According to LISEP

While some low-wage workers are moving out of poverty, those in the middle are squeezed

‍Jim Gardner

July 16, 2021

For Immediate Release

Additional Resources

Historically, systemic barriers have disproportionately hampered Black farmers’ ability to retain land ownership.

Despite this tragic history, there is still time and economic incentive to set some of the inequities right.

In 2021, working mothers with children under 18 earned just 61.7 cents for every dollar a father made. Much wider than the overall gender wage gap, this difference highlights both the motherhood penalty and the fatherhood premium.

Female-dominated, low-paying, part-time occupations are overrepresented among informal workers who also have a formal job.

We need to create an economic environment where companies can hire these workers as employees and pay them a living wage. There are steps policymakers can take to change the gig economy dynamic.

Dependency on tips over base pay is growing because of actions taken by gig companies to institute tipping.

Even for those lucky enough to be making what amounts in many states to the poverty wage of $15 per hour, many will get nothing but a week’s notice before being out on the street.

One study shows that consistent involvement in extracurricular activities increased a child’s likelihood of attending college by a whopping 400% compared to not being involved at all.

Studies have found that both men and women are paid less if they work in “nurturant” occupations.

Since 2015, the correlation between LISEP’s functional employment to population ratio and the inflation rate was more than four times as strong as the BLS’s employment to population ratio, which is depicted in the graph below.

The employment to population ratio settles the discrepancy between what we see around us and what the data says.

The NBER paper defines employment using the traditional BLS U-3 rate. However, the often-used U-3 number fails to capture the quality of jobs.

Among states with stricter COVID-19 policies, reducing unemployment benefits had little to no effect. The average effect of increased employment seems to have occurred only in those states with looser COVID protocols.

Ludwig notes that while individually both TRU and TWE offer signs of optimism for a recovering economy, combined they signal concerns for a critical sector: middle-income Americans.

Press Contact:

‍Jim Gardner

press@lisep.org

(573) 680-1822

Additional Resources:

TRU Summary

TRU White Paper

TWE White Paper

TRU & TWE Methodology

TRU & TWE Source Data

About TRU

LISEP issued the white paper Measuring Better: Development of “True Rate of Unemployment” Data as the Basis for Social and Economic Policy upon announcing the new statistical measure in October 2020. The paper and methodology can be viewed here. LISEP issues TRU one to two weeks following the release of the BLS unemployment report, which occurs on the first Friday of each month. The TRU rate and supporting data are available on the LISEP website at lisep.org/tru.

About TWE

LISEP issues the TWE quarterly following the release of the BLS Median Weekly Earnings report. The full white paper, Understanding the Status of American Workers Through Analysis of Current Population Data, can be viewed here. The TWE rate and supporting data are available on the LISEP website at lisep.org/earnings.

About LISEP

The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by Gene Ludwig and his wife, Dr. Carol Ludwig. The mission of LISEP is to improve the economic well-being of middle- and lower-income Americans through research and education. LISEP’s original economic research includes new indicators for unemployment, earnings, and cost of living. These metrics aim to provide policymakers and the public with a more transparent view of the economic situation of all Americans, particularly low- and middle-income households, compared with misleading headline statistics. On X: @LISEP_org.

About Gene Ludwig

In addition to his role as LISEP chair, Gene Ludwig is founder of the Promontory family of companies and Canapi LLC, a financial technology venture fund. He is the founder and CEO of Ludwig Advisors, which counsels financial firms on critical matters. Ludwig is the former vice chairman and senior control officer of Bankers Trust New York Corp. and served as the U.S. Comptroller of the Currency from 1993 to 1998. He is also author of the book The Vanishing American Dream, which investigates the economic challenges facing low- and middle-income Americans. On Twitter: @geneludwig.

Please Note:

The Ludwig Institute for Shared Economic Prosperity continuously revises and updates its data. As a result, data presented in this release may no longer reflect the latest estimates. Find the most current data at lisep.org.