Functional Unemployment Virtually Unchanged as Inflation Eats Away Worker Earnings

While hiring remains robust, workers struggle to make ends meet, says Ludwig Institute

June 14, 2022

For Immediate Release

WASHINGTON, D.C. — Even though official government statistics indicate the U.S. economy continues to add jobs and the Bureau of Labor Statistics (BLS) reports the lowest jobless rate in more than two years, the Ludwig Institute for Shared Economic Prosperity (LISEP) reports the “functional unemployment” rate remains high due to the inability of low- and middle-income workers to earn a living wage in the face of rising inflation.

LISEP’s May True Rate of Unemployment (TRU) report — a measure of the “functionally unemployed,” defined as the jobless, plus those seeking but unable to secure full-time employment paying above the poverty line after adjusting for inflation — remained basically stable, dropping 0.1 percentage points, from 23.1% in April to 23.0%. The BLS reported no change in its May jobs report, remaining unchanged at 3.6% for the third consecutive month while adding 390,000 jobs.

A flat TRU in spite of a growing workforce is a strong sign that inflation is forcing low- and middle-income workers into a position where their jobs no longer provide a living wage that keeps them above the poverty line, according to LISEP chairman Gene Ludwig.

“Inflation is by far outpacing the modest pay increases we’ve seen for lower wage workers, to the extent that they’ve been forced into an untenable financial situation,” Ludwig said. “It is becoming increasingly difficult for a working family in America to cover even the most basic household needs.”

Ludwig noted that new LISEP research released in March showed that the Consumer Price Index (CPI) has understated the impact of inflation on middle- and low-income households by 40% over the last 20 years, primarily due to an understatement on the rising costs of basic necessities.

While LISEP’s TRU overall showed little to no improvement in living-wage job growth, there were some bright spots in the May report. Functional unemployment among Black workers fell, from 26.5% to 25.2%, and the rate for women improved from 28.1% to 27.5%. The rate for White workers improved almost a full percentage point, dropping from 22.0% to 21.1%. But meanwhile, the rate for Hispanic workers took a big jump, from 25.7% to 27.1%, and functional unemployment for men jumped from 18.6% to 19.2%.

Ludwig said that even though the overall TRU report is showing only marginal improvement over the last few months, over the last two years progress is being made: in May 2021, the TRU was 25.5%; in May 2020 the rate was 31.4%. Still, he said, owing largely to an accelerating inflationary trend, nearly one-in-four American workers are seeking, but unable to find, a full-time, living-wage job — something that should be top-of-mind for policymakers.

“Improvement is encouraging, but we know that as a nation, we can do better,” Ludwig said. “Our goal should move beyond the old school view of an economic recovery, where an improvement in traditional headline statistics was enough. Every worker deserves the opportunity for an inflation-adjusted, living wage job. Any economic recovery short of that goal is wholly unsustainable.”

Functional Unemployment Virtually Unchanged as Inflation Eats Away Worker Earnings

While hiring remains robust, workers struggle to make ends meet, says Ludwig Institute

‍Jim Gardner

June 14, 2022

For Immediate Release

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.