Low-Wage Workers Appear to be Leaving Workforce, According to Ludwig Institute

Inflation’s impact, with stagnant wage growth, may contribute to worker disillusion

May 18, 2022

For Immediate Release

WASHINGTON, D.C. — While a drop in the percentage of Americans in the workforce classified as “functionally unemployed” appears to be a good indication of a recovering economy, issues with the workforce participation rate may indicate that low-wage earners are joining the ranks of discouraged workers, according to an analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP’s April 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 — decreased by 0.4 percentage points, from 23.5% in March to 23.1%. While this is a positive trend, a deeper analysis reveals that the True Out of Population, the percentage of the entire adult population (age 16 and older) who could be classified as functionally unemployed, remained unchanged — an indication that the improved TRU may be attributed to low-wage workers leaving the active workforce and joining the ranks of “discouraged workers.”

Meanwhile, the U.S. Bureau of Labor Statistics (BLS) reported no change in its monthly unemployment report, remaining steady at 3.6% from March to April in spite of the addition of 428,000 new jobs.

“The math is simple: when the government reports new jobs are added but the unemployment rate doesn’t change, it means low-wage workers are discouraged from working, as even with employment, they are falling farther behind,” said LISEP Chair Gene Ludwig. “And as the TRU data show, some are giving up and leaving the labor force entirely, which is alarming, considering the already-low labor force participation rate.

“We see inflation eating up buying power. And this is nothing new for low- and middle-income families, as the cost of necessities has outpaced the government-reported inflation rate for at least two decades.”

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.

By demographic, Hispanic workers saw the biggest TRU improvement, dropping by 1.6 percentage points to 25.7%, followed by Blacks workers, with a 1.4 percentage point drop to 26.5%. The large movement is likely beyond just those workers moving into the “discouraged” category and more likely a rebound from a significant uptick in the TRU for Black and Hispanic workers in March, when these groups saw 1.6 and 2.2 percentage point spikes, respectively. The TRU for White workers was up 0.2 percentage points for April at 22%. Both male and female TRU went down marginally and now stand at 18.6% (down 0.4) and 28.1% (down 0.1), respectively.

“While I would like to think this report constitutes a positive sign for our economy, the underlying data cannot be ignored — too many Americans remain among the working poor, which has only been exacerbated by recent inflationary trends,” Ludwig said. “Workers must, at the very least, have inflation-adjusted living wage if we are to see an equitable, sustainable recovery.”

Low-Wage Workers Appear to be Leaving Workforce, According to Ludwig Institute

Inflation’s impact, with stagnant wage growth, may contribute to worker disillusion

‍Jim Gardner

May 18, 2022

For Immediate Release

Additional Resources

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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.

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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.

Meanwhile, the U.S. Bureau of Labor Statistics (BLS) reported no change in its monthly unemployment report, remaining steady at 3.6% from March to April in spite of the addition of 428,000 new jobs.

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.

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.