‘Functional Unemployment’ Makes Biggest Jump Since Start of Pandemic

Black, Hispanic workers hit hardest with fewer living-wage jobs, according to Ludwig Institute

November 21, 2022

For Immediate Release

WASHINGTON, D.C. — The rising cost of living continues to take a toll on working families, with a growing percentage of American workers unable to find a living-wage job or their current job fails to boost them over the poverty line after adjusting for inflation, according to the monthly True Rate of Unemployment (TRU) report by the Ludwig Institute for Shared Economic Prosperity (LISEP).

The TRU for the month of October topped 23.6%, a 1.3 percentage point increase over the previous month. This is the biggest month-over-month increase since the beginning of the pandemic in April 2020, and an indication that low- and middle-income workers are having a tougher time just to cover basic necessities, according to LISEP Chair Gene Ludwig.

“Until the last quarter, this administration has been doing well raising living standards for many middle- and lower-income Americans. However, both inflation and the Fed’s response to it — a precipitous rise in interest rates — are taking a big bite out of this progress. American families are hurting due to a combination of higher prices and wages failing to keep up,” Ludwig said. “Policymakers from both sides of the aisle would be well served to take heed and implement proactive policies creating good-paying jobs capable of supporting a family, and at a bare minimum, cover basic needs and provide for a reasonable quality of life.”

TRU tracks the “functionally unemployed,” defined by LISEP as the jobless, plus those seeking but unable to secure full-time employment paying above the poverty line after adjusting for inflation. LISEP’s TRU is in stark contrast to the official government unemployment rate issued by the U.S. Bureau of Labor Statistics (BLS), which reported a more modest increase of 0.2 percentage points from September to October, from 3.5% to 3.7%.

LISEP reports that functional unemployment increased for all major demographics, with Black workers experiencing the largest increase of 3.4 percentage points, from 24.8% to 28.2%. Functional unemployment for Hispanic workers increased 2.4 percentage points, from 23.5% to 25.9%, with the TRU for White workers increasing 0.75 percentage points, from 21.8% to 22.5%. The TRU for men jumped 1.9 percentage points (17.2% to 19.1%), while the TRU for women increased 0.4 percentage points, from 28.1% to 28.5%.

Ludwig notes that a rising TRU can spell particularly bad news for low- and middle-income workers when one considers that the Consumer Price Index (CPI) is understating the impact of inflation on middle- and lower-income households. Last week, LISEP released data supporting its True Living Cost (TLC) Index, a measure of the effect of rising prices on the ability of families to pay for minimum adequate needs in seven categories: food, housing, healthcare, transportation, basic technology, childcare, and apparel/personal care. LISEP found that from 2020 to 2021, the price of necessities has increased 5.8% versus the CPI’s 4.7%. And from 2001 to 2021 the TLC rose 50% faster than the CPI, 78.8% versus the 54.4% reported by the CPI.

“If we are to address the kitchen table issues most important to American families, it must begin with addressing how we measure the economy — one size does not fit all,” Ludwig said. “The sooner we understand the dire and very real challenges facing middle- and lower-income households, the sooner we can work together for meaningful, sustainable solutions.”

‘Functional Unemployment’ Makes Biggest Jump Since Start of Pandemic

Black, Hispanic workers hit hardest with fewer living-wage jobs, according to Ludwig Institute

‍Jim Gardner

November 21, 2022

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.

Press Contact:

‍Jim Gardner

press@lisep.org

(573) 680-1822

Additional Resources:

TRU Summary

TRU 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 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.