Labor Participation Up But So Is ‘Functional Unemployment’

Monthly Ludwig Institute report indicates stagnant wages for low-income workers

September 14, 2023

For Immediate Release

WASHINGTON, D.C. — In spite of a higher labor participation rate in August, many of these new workforce participants are finding themselves without full-time jobs paying a living wage, according to the August True Rate of Unemployment (TRU) report by the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP’s TRU, a measure of the“functionally unemployed” — defined as the jobless, plus those seeking, but unable to find, full-time employment paying above the poverty line after adjusting for inflation — increased 0.1 percentage points, from 22.9% to 23%. While the increase might seem small, that increase — combined with a 0.2 percentage point increase in the labor force participation rate — indicates that even though more Americans are working, many are unable to find jobs paying over the poverty line. Similarly, the official U.S. unemployment rate issued by the Bureau of Labor Statistics also increased, from 3.5% to 3.8%.

“Federal policy to slow inflation has focused on raising interest rates to slow business expansion, and by extension, wage and job growth. Well, it appears they have succeeded,” said LISEP Chair Gene Ludwig. “But the ones paying the price are those that can least afford it — low-wage earners. There has to be a better way.”

The functional unemployment rate increased for all demographic groups, with the exception of Hispanic workers, who saw a 2.7 percentage point improvement, dropping from 27.9% to 25.2% — a partial rebound from a 3 percentage point spike in July. Black workers saw a 0.5 percentage point increase, from 24.9% to 25.4%, with White workers seeing a 0.8 percentage point jump, from 21.1% to 21.9%. The TRU for women improved by 0.3 percentage points (from 27.7% to 27.4%), while the TRU for men increased by 0.3 percentage points, from 18.9% to 19.2%.

The TRU for those without a four-year college degree improved in August after increasing in July: down 1.5 percentage points for those with no high school (47.4%), 0.6 percentage points for those with a high school diploma (26.6%), and 0.8 percentage points for those with some college but no degree (24.4%). The TRU continued to increase slightly for those with bachelor's degrees (0.1 percentage points, to 15.1%), and increased 1.2 percentage points for those with advanced degrees (13.7%).

“While it can be said that only a slight uptick in functional unemployment is a sign workers are holding their ground, even in the face of inflation, it is concerning when we see this rise in parallel with an expansion of the workforce,” Ludwig said. “If we are to see a sustainable, growing economy, it must include everyone, including low-wage earners. This is a very important point policymakers must consider.”

Labor Participation Up But So Is ‘Functional Unemployment’

Monthly Ludwig Institute report indicates stagnant wages for low-income workers

‍Jim Gardner

September 14, 2023

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.