About 1 in 4 Americans are "functionally unemployed," researcher says
The low unemployment rate, which stood at 4.2% in April, has signaled to economists and investors alike that the U.S. economy remains relatively healthy. Employers are also continuing to hire despite headwinds like tariffs and plunging consumer confidence.
But another indicator suggests those pieces of government data may be painting an overly rosy picture of the economy, with a recent report from the Ludwig Institute for Shared Economic Prosperity (LISEP) finding the "true rate" of unemployment stood at 24.3% in April, up slightly from 24% in March, while the official Bureau of Labor Statistics rate remained unchanged at 4.2% over the same period.
LISEP's measure encompasses not only unemployed workers, but also people who are looking for work but can't find full-time employment, as well as those stuck in poverty-wage jobs. By tracking functionally unemployed workers, the measure seeks to capture labor market nuances that other economic indicators miss, such as Americans who are left behind during periods of economic expansion.
"The unemployment data, as it's put out, has some flaws," LISEP chairman Gene Ludwig told CBS MoneyWatch. "For example, it counts you as employed if you've worked as little as one hour over the prior two weeks. So you can be homeless and in a tent community and have worked one hour and be counted, irrespective of how poorly-paid that hour may be."
LISEP, in a working paper on the gauge, says the measure prevents part-time jobs or poorly paid work from being counted as equal to full-time and better-paid work. LISEP also argues that the unemployment rate "presents a very incomplete and, in many ways, misleading picture."
In other words, people who lack steady work and don't earn living wages shouldn't be counted as functionally employed. Its True Rate of Unemployment (TRU), which began tracking the measure in 2020, encapsulates workers whose earnings don't allow them to make ends meet, and are struggling just to get by, according to LISEP.
"If you're part time and can't get a full-time job, then we count you as functionally unemployed," Ludwig noted. "We also count as functionally unemployed people who don't earn above a poverty wage."
"Survival mode"
In so doing, it counts workers who can't afford to put roofs over their heads, can't procure nuturious meals and don't have the ability to save as being functionally unemployed.
"You don't have anything that gets you to the first rung of the American dream ladder. You're in survival mode," Ludwig said.
When broken down by race and gender, TRU shows Hispanic, Black and women workers faring worse than White workers, as well as men.
More than 28% of Hispanic workers, and nearly 27% of Black workers are functionally unemployed, compared to 23% of White workers. And more female workers — 28.6% — are functionally unemployed than male workers, whose true rate of unemployment stands at 20%, according to LISEP.
Millions of households are currently struggling to maintain a "minimal quality of life," according to another recent analysis from LISEP.
Its research found that the lowest-earning Americans around the U.S. are falling well short of what they need to maintain a decent standard of living. These households earned an average of $38,000 per year in 2023, but would need to make $67,000 to afford the items the group tracks as part of its index, which also includes the cost of professional clothing and basic leisure activities.
The wide chasm between the the BLS's measure of unemployment and its true rate of unemployment is also concerning, according to Ludwig.
"If you say there's 4.2% unemployment, which makes political folks happy because it's a low number, it causes all kinds of poor policy decisions and assumes we are better off than we are," Ludwig said. "There's less energy and less of a push to improve employment, and the people who get hurt at middle- and low-income Americans."
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