According to the Ludwig Institute, low-wage workers seem to be leaving the labor market

The impact of inflation, with stagnant wage growth, may contribute to worker disillusionment

WASHINGTON, May 18, 2022 /PRNewswire/ — While a drop in the percentage of Americans in the labor force classified as “functionally unemployed” seems like a good indication of an economic recovery, problems with the labor force participation rate may indicate that low-wage workers are joining the ranks of discouraged workers, according to an analysis of the Ludwig Institute for Shared Economic Prosperity (LISEP).

Analysis by the Ludwig Institute for Shared Economic Prosperity (LISEP) finds that the actual unemployment rate – that is, those who seek, but cannot find, full-time paid employment above the poverty line – stands at 23.1% for April. LISEP defines this group as “the functionally unemployed”.

April of LISEP Real unemployment rate (TRU) – a measure of the “functionally unemployed”, defined as the unemployed, plus those seeking but unable to obtain full-time paid employment above the poverty line – fell by 0.4 percentage points , falling from 23.5% in March to 23.1% . Although this is a positive trend, further analysis reveals that the True Excluding Populationthe percentage of the total adult population (aged 16+) that could be classified as functionally unemployed remained unchanged – an indication that the improvement in URR can be attributed to low-wage workers leaving the labor force and join the ranks of the “discouraged”. workers.”

Meanwhile, the US Bureau of Labor Statistics (BLS) reported no change in its monthly unemployment report, holding steady at 3.6% from March to April despite adding 428,000 new jobs.

“The math is simple: when the government signals that new jobs are being added but the unemployment rate does not change, it means that low-wage workers are discouraged from working, because even with a job, they are increasingly lagging behind”, declared the president of LISEP. Gene Ludwig. “And as the TRU data shows, some are dropping out and leaving the labor force altogether, which is alarming given the already low labor force participation rate.

“We are seeing inflation eat away at purchasing power. And that’s nothing new for low- and middle-income families, as the cost of basic necessities has exceeded the inflation rate declared by the government for at least least two decades.”

LISEP research published in March showed that the Consumer Price Index (CPI) underestimated the impact of inflation on middle and low income households by 40% over the past 20 years.

In demographic terms, Hispanic workers saw the biggest improvement in TRU, dropping 1.6 percentage points to 25.7%, followed by Black workers, with a drop of 1.4 percentage points to 26.5% . The significant movement likely goes beyond just workers who fall into the ‘discouraged’ category and more likely a rebound after a significant rise in the TRU for black and Hispanic workers in March, when those groups recorded spikes of 1.6. and 2.2 percentage points, respectively. The URR for white workers rose 0.2 percentage points in April to 22%. The male and female URRs have declined slightly and are now at 18.6% (down 0.4) and 28.1% (down 0.1), respectively.

“While I would like to think this report is a positive sign for our economy, the underlying data cannot be ignored – too many Americans remain among the working poor, which has only been exacerbated by the recent inflationary tendencies,” Ludwig said. “Workers must, at the very least, have a living wage adjusted for inflation if we are to see a fair and sustainable recovery.”

About TRU
LISEP published the white paper “Measuring Better: Development of ‘True Rate of Unemployment Data as the Basis for Social and Economic Policy” when announcing the new statistical measure in October 2020. The document and the methodology can be consulted here. LISEP issues the TRU one to two weeks after 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. Carole Ludwig. LISEP’s mission is to give policymakers a more transparent view of the economic well-being of middle- and low-income Americans, and seeks to advance the dialogue around policy solutions.

On Gene Ludwig
In addition to his role as President of LISEP, Gene Ludwig is the founder of the Promontory family of companies and Canapi LLC, a fintech venture capital fund. He is the CEO of Promontory MortgagePath, a technology-based mortgage management and solutions company. Ludwig is the former Vice President and Chief Comptroller of Bankers Trust New York Corp., and served as Comptroller of the United States Currency from 1993 to 1998. He is also the author of the book The fading American dream, which studies the economic challenges facing middle- and low-income Americans. He left in September 2020 by Disruption Books. On Twitter: @geneludwig.

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SOURCE Ludwig Institute for Shared Economic Prosperity

Michael A. Bynum