‘Functional Unemployment’ Drops to Lowest Rate in Nearly Two Years

More American workers now in living-wage jobs than any time since December 2019

September 15, 2021

For Immediate Release

WASHINGTON, D.C. — A higher demand for low- and middle-income workers and robust competition for those employees led to a higher percentage of American workers in full-time, living-wage jobs last month than any time since December 2019, according to an analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP’s True Rate of Unemployment (TRU) for August revealed that the percentage of “functionally unemployed” Americans — defined as those seeking, but unable to find, full-time employment paying above the poverty level — dropped to 22.8%, a 0.6 percentage point decline. This is the lowest TRU since the 22.7% rate posted in December 2019, three months before the onset of the COVID-19 pandemic.

“Workers in traditionally lower-paying positions, many of whom were considered essential during the pandemic, are finally seeing compensation that approaches their contribution, and that is reflected in this month’s numbers,” said LISEP chairman Gene Ludwig. “The implications of this development are tremendous — this means literally thousands of individuals are now able to better provide for their families.”

Ludwig, who served as U.S. Comptroller of the Currency from 1993-1998, noted that a major driver in the improved TRU lies with industries traditionally paying lower wages — such as retail, hospitality, and food service — and a trend among these sectors to increase starting wages to compete for the best workers as the nation emerges from the pandemic recession.

“This is a very positive development for low- and middle-income families, and indeed for the economy as a whole,” Ludwig said. “A rising tide should lift all boats.”

In fact, all major demographics enjoyed an improvement in the August TRU rate, led by Black workers with a 1.1 percentage point decrease, from 29.8% to 28.7%. The TRU for Hispanics decreased from 25.4% to 25.1%, while the White TRU rate dropped from 21.6% to 21.2%. The TRU for men dropped a full percentage point, from 19.2% to 18.2%, while the rate for women dropped a more modest 0.4 percentage points, from 28.3% to 27.9%.

Among educational groups, those with advanced degrees saw the biggest improvement, with the TRU dropping from 12.8% to 10.4%, a 2.4 percentage point improvement. This was followed by those with some college but less than a bachelor’s degree, dropping from 26.2% to 25.1%, and those who ended their education with a high school diploma, with the TRU dropping from 26.6% to 25.8%. Two groups, however, saw an increase in TRU: those with no high school diploma, from 46.0% to 47.7% (a 1.7 percentage point increase), and those with only a bachelor’s degree, from 15.8% to 16.1% (a 0.3 percentage point increase).

Overall, Ludwig said, it is a good report that bodes well for the near-term future of the economy.

“The economy is moving in the right direction, which indicates current policy initiatives are working to improve conditions across the board — not just for a select few,” Ludwig said. “It is important to keep the momentum going, and that begins with the pending legislation aimed at investing in the people and infrastructure critical to move the economy forward.”

‘Functional Unemployment’ Drops to Lowest Rate in Nearly Two Years

More American workers now in living-wage jobs than any time since December 2019

‍Jim Gardner

September 15, 2021

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.

“This is a very positive development for low- and middle-income families, and indeed for the economy as a whole,” Ludwig said. “A rising tide should lift all boats.”

Overall, Ludwig said, it is a good report that bodes well for the near-term future of the economy.

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.

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.