Functional Unemployment Down for Black Workers, But So Is Workforce Participation

Societal and economic factors may be squeezing Black workers out of labor market

May 17, 2023

For Immediate Release

WASHINGTON, D.C. — The percentage of Black workers in the labor market with living-wage jobs is at an all-time high, according to the Ludwig Institute for Shared Economic Prosperity (LISEP). But the improvement in April may be less about getting better jobs, and more about workers dropping out of the job market.

"Any time we see numbers trending in a positive direction we are encouraged things are getting better for low- and middle-income families but just because the numbers look better doesn't mean circumstances are improving," said LISEP Chairman Gene Ludwig. "It's important to dig deeper into the numbers to understand the 'why'."

In LISEP’s monthly True Rate of Unemployment (TRU) report for April, the overall “functional unemployment” rate increased from 22.9% to 23.1% but was mixed among demographic groups. LISEP defines functionally unemployed as the jobless, plus those seeking, but unable to find, full-time employment paying above the poverty line after adjusting for inflation. By contrast, the U.S. Bureau of Labor Statistics (BLS) reported a decrease in the official jobless rate, from 3.5% to 3.4%.

Among key demographics, the TRU for White workers went up half a percentage point, from 21.5% to 22%, while the TRU for Hispanic workers went down a full percentage point, from 27.2% to 26.2%. For men, the TRU dropped 0.4 percentage points, from 19.3% to 18.9%, while for women the TRU increased, from 27% to 27.9%.

Black workers seemingly hit a TRU milestone during April, with a rate that dropped from 25.4% to 24.5% — the lowest rate since January 1995, the first month for which LISEP has data. But TRU's sister metric, TRU Out of the Population (TRU OOP), suggests the improvement is the result of Black workers leaving the labor force, not finding full-time employment. TRU OOP serves as an indicator of workforce participation by measuring the percentage of total working-age population seeking, but unable to find, a full-time paying job above the poverty level. During the same time period, TRU OOP only improved 0.1 percentage points.

LISEP notes no single factor could be isolated as a cause for this shift but speculated inflationary pressures on expenses associated with holding a job, such as childcare and transportation, may mean some low-wage jobs are now money-losing propositions. Regardless, Ludwig said, this is a turn of events in need of further investigation.

“This is a perfect example of why policymakers cannot rely on government headline statistics alone on matters involving the nation’s economic well being,” Ludwig said. “In spite of official numbers that may show record low unemployment and rising wages, a deeper dive into these data reveals a large swath of American households that are getting squeezed from all sides. We know the ‘what.’ Now it is up to policymakers to determine the ‘why’ and begin the discussion toward a reasonable solution.”

Functional Unemployment Down for Black Workers, But So Is Workforce Participation

Societal and economic factors may be squeezing Black workers out of labor market

‍Jim Gardner

May 17, 2023

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.