Labor Participation Up But So is 'Functional Unemployment'

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Ludwig Institute for Shared Economic Prosperity

Sep 14, 2023, 13:10 ET

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

WASHINGTON, Sept. 14, 2023 /PRNewswire/ -- 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).

The Ludwig Institute for Shared Economic Prosperity (LISEP) has issued the True Rate of Unemployment report for August, which measures the percentage of Americans who are 'functionally unemployed' -- defined as the percentage of workers seeking but unable to find a full-time, living-wage job.

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."

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 https://www.lisep.org/tru.

About LISEP

The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by 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 a managing partner of 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 also the founder of the Promontory family of companies. He 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.

SOURCE Ludwig Institute for Shared Economic Prosperity