Inflation Nibbles at Paychecks as Functional Unemployment Inches Upward for July

Rising prices and workers moving to involuntary part-time status impact living-wage jobs

August 17, 2022

For Immediate Release

WASHINGTON, D.C. — Even though government-reported statistics show inflation easing and jobs being added, the percentage of the American workforce unable to find and maintain living-wage jobs inched upward slightly for July, according to an analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP).

In its monthly True Rate of Unemployment (TRU) for July, LISEP reported that 22.3% of American workers are now classified as “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. This is an increase of 0.2 percentage points over the June TRU and is in contrast to the official unemployment report issued by the U.S. Bureau of Labor Statistics (BLS), which showed an improving jobless rate, dropping from 3.6% to 3.5%.

According to LISEP, the difference between the TRU and the BLS-reported unemployment numbers is the growing number of workers being involuntarily moved to part-time status (part-time employment grew by 303,000 in July, according to the BLS) which, when combined with lingering inflationary pressures, has forced a growing number of low-wage workers below the poverty line and thus into the ranks of the functionally unemployed. Some dropped out of the workforce altogether, with the labor force participation rate down 0.1 percentage points in July.

“While we are seeing some positive signs this summer pointing toward a stabilizing economy from an inflationary perspective, there remains a segment of the population that has been hit disproportionately hard by rising prices, which is the very same segment with a less stable employment situation,” said LISEP chair Gene Ludwig. “This is why policymakers must dig deeper than just the headline statistics. They do not tell the entire story.”

Ludwig noted that according to LISEP’s True Living Cost (TLC) Index — a metric that tracks price changes for a basket of items that includes only minimum adequate needs — over the last 20 years expenses for middle- and low-income families has risen 40% more than what has been reported by the Consumer Price Index (CPI).

Demographically, the only groups with an improved TRU were White workers, dropping from 20.7% to 20.5%, and males, improving from 17.7% to 17.5%. Hispanic workers saw the biggest jump in functional unemployment, climbing from 25.2% to 26.3%, with Black workers also posting an increase in TRU, from 25.5% to 25.8%. Functional unemployment also increased for women, from 26.9% to 27.5%.

The TRU for workers without a high school diploma and those with some college, but no bachelor’s degree, jumped by 1.6% (45.7% to 47.3%) and 1.8% (23.8% to 25.6%), respectively. All other educational groups saw an improved TRU.

“A sustainable recovery must be equitable, and we are witnessing real disparity between improving headline statistics and the facts on the ground for millions of American families,” Ludwig said.

Inflation Nibbles at Paychecks as Functional Unemployment Inches Upward for July

Rising prices and workers moving to involuntary part-time status impact living-wage jobs

‍Jim Gardner

August 17, 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.

“A sustainable recovery must be equitable, and we are witnessing real disparity between improving headline statistics and the facts on the ground for millions of American families,” Ludwig said.

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 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.