More Workers Turning to 'Informal Economy' to Make Ends Meet, According to Ludwig Institute

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Ludwig Institute for Shared Economic Prosperity

Oct 29, 2024, 12:00 ET

Women, young and Black workers most likely to turn to 'off-the-books' income sources

WASHINGTON, Oct. 29, 2024 /PRNewswire/ -- A growing number of Americans turned to "off-the-books" work in 2023, according to a new study by the Ludwig Institute for Shared Economic Prosperity (LISEP). However, findings revealed these supplemental forms of income were largely ineffective in lifting low-income workers above poverty-level wages.

"Our research shows that individuals most likely to turn to the informal economy are those who have been unable to secure stable, well-paying positions in the formal market," said LISEP Chairman Gene Ludwig. "Contrary to popular belief, however, informal work is no panacea for those struggling to find living wage jobs."

According to LISEP's research, 1.4 million Americans reported working informally for pay on an average day in 2023—the highest level since 2016. While this represents a considerable increase in the daily average from the last three years (1.14 million), the informal economy was less effective in helping low-income earners achieve functional employment—defined as earning above poverty wages ($25,000 a year in 2024 dollars) after adjusting for inflation and working full-time hours, if desired. Despite low levels of unemployment in the formal labor market,15.9% of informal workers were unemployed job seekers in 2023, compared to 2.2% of the overall population.

Using LISEP's True Rate of Unemployment Out of the Population (TRU OOP) metric—which measures the functional unemployment rate of the entire working-age population (16+)—incorporating informal earnings would have reduced the functional unemployment rate by only 0.8 percentage points at most, from 51.9% to 51.1%. By comparison, incorporating informal earnings would have reduced TRU OOP by 1.3 percentage points in 2022 and an average 1.2 percentage points lower from 2003 to 2022.

Women, young, and Black workers continue to be disproportionately represented in the informal economy. In 2023, nearly twice as many women as men reported working informally. Among workers aged 16-24, 640,000 reported working informally in 2023, the highest level since 2008. And over the last three years, 53 out of every 10,000 Black workers reported working informally on an average day, compared to 42 White workers and 45 Hispanic workers.

"The perception that middle- and low-income Americans are financially better off than headline statistics suggest due to unreported one-off and side jobs is nothing more than a myth," Ludwig said. "Policymakers must recognize this reality to develop effective solutions."

About The Informal Economy
LISEP issued the white paper "The Hidden Workforce: The Impact of the Informal Economy on Functional Employment" in 2023 as part of its ongoing analysis of the functionally unemployed, defined as workers who are jobless, plus those seeking, but unable to find, full-time employment paying above the poverty line. LISEP's measure of the functionally unemployed, the True Rate of Unemployment (TRU), is tracked monthly 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. On X: @LISEP_org.

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 X: @geneludwig.

SOURCE Ludwig Institute for Shared Economic Prosperity