True Rate of Unemployment: One-fourth of American Workers Remain ‘Functionally Unemployed’ as Racial and Gender Gaps Widen

Addressing income inequality major challenge for new Congress, Administration, says LISEP chair

January 27, 2021

For Immediate Release

WASHINGTON, D.C. — More than one-fourth of American workers remain without a job that lifts them above the poverty level, presenting a major challenge for the new Congress and the Biden Administration, according to the latest analysis of the country’s unemployment rate released today by the Ludwig Institute for Shared Economic Prosperity (LISEP). At the same time, racial and gender gaps have widened, exacerbating economic inequity.

“For any economic recovery to be sustainable, the rising tide must lift all boats,” said Gene Ludwig, LISEP chairman. “While we have seen some improvement in the government-reported unemployment rate since the pandemic began, many of these jobs are not sufficient to support a family. No economic recovery can succeed without the opportunity for all Americans to participate equally.”

In its monthly analysis of employment data, LISEP’s True Rate of Unemployment (TRU) – a measure of the “functionally unemployed,” defined as workers seeking but unable to secure full-time jobs that take the mover the poverty level – came in at 25.1 percent for the month of December. This is a marginal improvement over the November TRU of 25.7 percent. TheBureau of Labor Statistics (BLS) unemployment rate for December was unchanged at 6.7 percent.

While the overall TRU showed a slight overall improvement in living wage job growth, the improvements were not equal across all demographics. The slight decrease was fueled primarily by a1.3 point improvement in the TRU for White Americans (now 22.7 percent), versus a 0.2 point improvement for Black workers, to 30.2 percent. The TRU rate for Hispanic Americans worsened, up 1.5 points to 31.6 percent.

Meanwhile, the TRU among workers with the highest education level (professional or advanced degrees) has fully recovered to pre-pandemic levels at 11.5 percent, a full percentage point lower than in February 2020. Living-wage job prospects worsened, though, for those with only some college (less than a bachelor’s degree), increasing from 21.8 percent to 24.1 percent, and for those with less than a high school diploma, with a TRU of 49.3 percent, up 0.8 points since November.

The gender gap among the functionally unemployed continues to widen as well, based on the TRU data. While the TRU for women improved by 0.3 points, the rate for men improved by 0.9, widening an immense gap between men and women – 20.6 versus 30.4 percent, respectively.

Ludwig was cautious regarding the overall TRU improvement, noting that the widening gender and race gaps are reasons for concern. He also noted that recent proactive measures by policymakers represent steps in the right direction.

“We must address inequality on all levels – gender, racial, economic – if we are to succeed as a nation, and that begins with the opportunity to secure a stable, living-wage job,” Ludwig said. “These numbers underscore the scale of the economic crisis facing the country, and strengthen the case for bold, decisive action by policymakers."

True Rate of Unemployment: One-fourth of American Workers Remain ‘Functionally Unemployed’ as Racial and Gender Gaps Widen

Addressing income inequality major challenge for new Congress, Administration, says LISEP chair

‍Jim Gardner

January 27, 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.

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.