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Functional Unemployment Virtually Unchanged as Inflation Eats Away Worker Earnings
While hiring remains robust, workers struggle to make ends meet, says Ludwig Institute

WASHINGTON, D.C. — Even though official government statistics indicate the U.S. economy continues to add jobs and the Bureau of Labor Statistics (BLS) reports the lowest jobless rate in more than two years, the Ludwig Institute for Shared Economic Prosperity (LISEP) reports the “functional unemployment” rate remains high due to the inability of low- and middle-income workers to earn a living wage in the face of rising inflation.

LISEP’s May 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 after adjusting for inflation — remained basically stable, dropping 0.1 percentage points, from 23.1% in April to 23.0%. The BLS reported no change in its May jobs report, remaining unchanged at 3.6% for the third consecutive month while adding 390,000 jobs.

A flat TRU in spite of a growing workforce is a strong sign that inflation is forcing low- and middle-income workers into a position where their jobs no longer provide a living wage that keeps them above the poverty line, according to LISEP chairman Gene Ludwig.

“Inflation is by far outpacing the modest pay increases we’ve seen for lower wage workers, to the extent that they’ve been forced into an untenable financial situation,” Ludwig said. “It is becoming increasingly difficult for a working family in America to cover even the most basic household needs.”

Ludwig noted that new 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, primarily due to an understatement on the rising costs of basic necessities.

While LISEP’s TRU overall showed little to no improvement in living-wage job growth, there were some bright spots in the May report. Functional unemployment among Black workers fell, from 26.5% to 25.2%, and the rate for women improved from 28.1% to 27.5%. The rate for White workers improved almost a full percentage point, dropping from 22.0% to 21.1%. But meanwhile, the rate for Hispanic workers took a big jump, from 25.7% to 27.1%, and functional unemployment for men jumped from 18.6% to 19.2%.

Ludwig said that even though the overall TRU report is showing only marginal improvement over the last few months, over the last two years progress is being made: in May 2021, the TRU was 25.5%; in May 2020 the rate was 31.4%. Still, he said, owing largely to an accelerating inflationary trend, nearly one-in-four American workers are seeking, but unable to find, a full-time, living-wage job — something that should be top-of-mind for policymakers.

“Improvement is encouraging, but we know that as a nation, we can do better,” Ludwig said. “Our goal should move beyond the old school view of an economic recovery, where an improvement in traditional headline statistics was enough. Every worker deserves the opportunity for an inflation-adjusted, living wage job. Any economic recovery short of that goal is wholly unsustainable.”

Functional Unemployment Virtually Unchanged as Inflation Eats Away Worker Earnings
While hiring remains robust, workers struggle to make ends meet, says Ludwig Institute
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WASHINGTON, D.C. — Even though official government statistics indicate the U.S. economy continues to add jobs and the Bureau of Labor Statistics (BLS) reports the lowest jobless rate in more than two years, the Ludwig Institute for Shared Economic Prosperity (LISEP) reports the “functional unemployment” rate remains high due to the inability of low- and middle-income workers to earn a living wage in the face of rising inflation.

LISEP’s May 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 after adjusting for inflation — remained basically stable, dropping 0.1 percentage points, from 23.1% in April to 23.0%. The BLS reported no change in its May jobs report, remaining unchanged at 3.6% for the third consecutive month while adding 390,000 jobs.

A flat TRU in spite of a growing workforce is a strong sign that inflation is forcing low- and middle-income workers into a position where their jobs no longer provide a living wage that keeps them above the poverty line, according to LISEP chairman Gene Ludwig.

“Inflation is by far outpacing the modest pay increases we’ve seen for lower wage workers, to the extent that they’ve been forced into an untenable financial situation,” Ludwig said. “It is becoming increasingly difficult for a working family in America to cover even the most basic household needs.”

Ludwig noted that new 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, primarily due to an understatement on the rising costs of basic necessities.

While LISEP’s TRU overall showed little to no improvement in living-wage job growth, there were some bright spots in the May report. Functional unemployment among Black workers fell, from 26.5% to 25.2%, and the rate for women improved from 28.1% to 27.5%. The rate for White workers improved almost a full percentage point, dropping from 22.0% to 21.1%. But meanwhile, the rate for Hispanic workers took a big jump, from 25.7% to 27.1%, and functional unemployment for men jumped from 18.6% to 19.2%.

Ludwig said that even though the overall TRU report is showing only marginal improvement over the last few months, over the last two years progress is being made: in May 2021, the TRU was 25.5%; in May 2020 the rate was 31.4%. Still, he said, owing largely to an accelerating inflationary trend, nearly one-in-four American workers are seeking, but unable to find, a full-time, living-wage job — something that should be top-of-mind for policymakers.

“Improvement is encouraging, but we know that as a nation, we can do better,” Ludwig said. “Our goal should move beyond the old school view of an economic recovery, where an improvement in traditional headline statistics was enough. Every worker deserves the opportunity for an inflation-adjusted, living wage job. Any economic recovery short of that goal is wholly unsustainable.”

Notes
‍Jim Gardner
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