A Tale of Two Unemployments

April 13, 2023

For Immediate Release

_This is sinful. Setting aside the likelihood that the average high-tech worker has squirreled away enough savings to withstand a few months without a job, the typical unemployment experience for the typical retail worker is still very different from those laid off by Meta, Google, or Amazon. That disparity is much worse than is commonly understood.

Google’s CEO Sundar Pichai recently promised his firm’s laid off workers will receive at least two months’ notice, severance packages starting at 16 weeks salary (which increases by one week for every year worked at the company), their full 2022 bonuses, and any accrued paid vacation time. On top of this, employees can claim up to six months of Google-sponsored healthcare benefits and are eligible to seek job placement assistance. Better yet, even as the tech behemoths are laying people off, tech start-ups are eagerly hiring new talent, with nearly two open job postings for each worker laid off in 2023. Many won’t be in the wilderness for long at all.

Laid-off retail workers face very different prospects. Even for those lucky enough to be making what amounts in many states to the poverty wage of $15 per hour (a rate that equates to a miserly $27,000 per year for a full-time employee), many will get nothing but a week’s notice before being out on the street. Very few will receive severance, let alone a bonus for the following year. Instead, they will be invited to tap into their state’s unemployment system, which will provide somewhere between $196 and $473 per week for a maximum of six months. If they received health care coverage from their employer — and, of course, many were not so lucky — they will lose it almost immediately. This is a tragic state of affairs.

The Biden administration’s recent proposal of a framework for a “good job” — one that entails just compensation, comprehensive benefits, and ample training opportunities — is a real step forward in many ways. However, this framework does not seem to address the critical question of how workers who face layoffs in economic downturns, like the one fast approaching, are treated. In this important respect, the Biden good job framework should be clarified so it incorporates the concept of humane treatment if the employee is laid off.

Fairness for hardworking Americans who, through no fault of their own, are laid off should not be exclusive to those industries that cater to highly-trained workers. Taking steps to ensure our fellow citizens who are laid off are well treated is a matter of fundamental fairness for all hardworking Americans.

A Tale of Two Unemployments

Gene Ludwig

Philip Cornell

April 13, 2023

For Immediate Release

_Sadly, we are likely headed towards serious unemployment in the United States. The Fed’s hammer of higher interest rates to fight inflation will almost inexorably lead to serious job loss.

Irrespective of how well intended or unavoidable this policy choice may have been, the consequences for those put out of work are harsh and cruel. However you slice it, when someone loses his or her job, it hurts and hurts badly, both in terms of a person’s material and psychological well-being. But the fact is, unemployment hits lower income Americans considerably harder than it does upper-class and typically better educated Americans.

For example, Meta recently announced it will cut 10,000 additional jobs. Google is eliminating 12,000. Amazon has chosen to pink slip 27,000 employees. But while this recent wave of high-tech layoffs spurred a deluge of media attention, markedly less notice has been made of another distressing reality: In January alone, hundreds of thousands of seasonal department store workers also lost their jobs. Within the wider universe of the retail and manufacturing sectors, the sheer number of job losses will unquestionably dwarf what’s lost in the high-tech arena. And yet those losing more modest positions get much less sympathy and attention.

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.

Gene Ludwig

Gene Ludwig, LISEP’s chair, is an internationally recognized leader on matters relating to banking, including financial technology, regulation, risk management, and fiscal policy. He is a managing partner of Canapi Ventures, which is focused on investments in early to growth-stage fintech companies. He is the founder and CEO of Ludwig Advisors, which provides counsel to leading financial institutions on critical issues. Gene is founder and former CEO and chairman of Promontory Financial Group, where he was an IBM executive after the firm was acquired. He was the founder and CEO of Promontory Interfinancial Network (now IntraFi), a technology leader in deposit services he sold to Blackstone.

In 2019, Gene founded the Ludwig Institute for Shared Economic Prosperity (LISEP), which is dedicated to improving the economic well-being of middle- and lower-income Americans. Its research includes the creation of more meaningful economic indicators for unemployment, earnings, and cost of living. LISEP’s statistics aim to provide policymakers and the public with a more realistic view into the economic situation of all Americans as compared with traditionally relied-upon metrics. Gene is the author of The Vanishing American Dream: A Frank Look at the Economic Realities Facing Middle- and Lower-Income Americans.‍

As U.S. Comptroller of the Currency from 1993 to 1998, Gene served as the Clinton administration’s point person on the policy response to the credit crunch of the early 1990s. He fashioned an 11-point plan that was instrumental in helping banks begin to lend again and fulfill their role of supporting the economy. Under his purview, lending to low- and moderate-income Americans increased tenfold, as did national bank investments in community development corporations. He brought 27 fair-lending cases, resulting in tens of millions of dollars in fines against violators. Before he was Comptroller, he was a partner at Covington & Burling. Gene graduated magna cum laude from Haverford College; he earned an M.A. from Oxford University and a J.D. from Yale Law School.

Gene spearheaded the Carol and Gene Ludwig Program in Public Sector Leadership at Yale Law School, which is focused on educational and professional support to Yale Law students who aspire to leadership roles in the public sector. The Ludwig Program helps prepare students for careers in areas such as government, nonprofits, and other institutions focused on serving the public.

Philip Cornell

Philip leads economic research for LISEP. He generates statistics that more meaningfully represent the economy, including on unemployment and earnings. He also works to apply these indices to research and to help formulate financial solutions for low- and moderate-income Americans.

As an undergraduate at Princeton University, he wrote a senior thesis about the links between financial regulation, corruption, and entrepreneurship. He graduated summa cum laude in economics with a minor in political economy and finance.