The Journey to Shared Prosperity
Ludwig Institute for Shared Economic Prosperity
Our mission is to improve the economic well-being of middle- and lower-income Americans through research and education.
By Gene Ludwig, Chairman
It has been said that “a journey of a thousand miles begins with a single step.” That is exactly the approach we took when, nearly five years ago, we founded the Ludwig Institute for Shared Economic Prosperity (LISEP).?
LISEP grew out of a symposium among noted economists and policymakers where nearly everyone agreed that many middle- and lower-income Americans were experiencing declining economic circumstances, though none of the symposium participants, nor available literature, had solid numbers dimensioning the problem.?And surprisingly, headline statistics suggested that economic circumstances were not declining for middle- and low-income Americans, but increasing. Not surprisingly, there was a plethora of opinions about what to do — but precious few measurable solutions. Some might result in big impacts, some not, but getting below opinions to actionable facts was difficult.?
We learned many things from that symposium, but for me the biggest takeaway was that we need not only big hearts, but a big effort to get to the economic facts. Truth matters if one is to make meaningful policy decisions.?
The first order of business was to get an answer as to why headline statistics pointed up, but on the ground, experiences and some credible studies go the other way. What we have found, and intuitively knew, is that the headline statistics used to guide economic policy — unemployment rate, Consumer Price Index (CPI), Gross Domestic Product (GDP), etc. — are?misleading due largely to the fact the definitions that drive them were locked in during the early part of the?20th century, based on late 19th century concepts. And nowhere was that more obvious than with the way we measure unemployment, which was our inspiration for developing a metric more applicable to middle- and working-class wage earners in the 21st century — the True Rate of Unemployment (TRU).
As we pointed out upon the debut of the TRU in 2020, being “employed” today is different than it was even 50 years ago, let alone almost a hundred years ago when the key definitional drivers were settled. Moreover, when the headline statistics were much more in sync with reality, it was not unusual for an individual to have the same stable, full-time, good-paying job for his or her entire life.??
Similar out-of-date definitional drivers infect all of the headline statistics so that today, they are not only off the mark, but are sufficiently misleading as to drive policy choices in wrong directions.?
And while the creation of metrics to better understand employment, wages, and cost of living might seemingly conclude our work, we knew it was just beginning: in 2023 we followed up these important metrics with a measure of the cost of basic recreation through the Minimal Quality of Life (MQL) index; we critically examined the role of the informal economy for middle- and working-class families; and we applied basic LISEP metrics to the local level in a comprehensive analysis of the nation’s 50 largest metropolitan areas.
We are pleased to report these have not been just lone trees falling in the forest, as we have seen extensive conversations continuing on panel discussions, as well as social and mainstream media. This was our intent from the beginning — to start a dialogue and encourage a series of discussions that may contribute to a framework for shared prosperity.
But the work continues, as in 2024, LISEP will continue to pursue original research that will take a more nuanced approach to the way we quantify productivity, as well as further refinement of the MQL and the production of analyses more useful on the regional and local level.?
Perhaps most importantly, we want to bring to light facts and statistics that rigorously examine policy choices, and to point policymakers in the right direction. This is the path to a true shared economic reality that will better the lives of our fellow citizens. The journey is just beginning.
We wish everyone a happy holiday season and a prosperous 2024.
Best,
Gene
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In this month’s edition of The Ludwig Report, The Year in Review:
‘Functional Unemployment’ Lowest in Six Months, But Some are Better Off Than Others
LISEP’s True Rate of Unemployment (TRU) report for November shows functional unemployment — defined as the jobless, plus those seeking, but unable to find, full-time employment paying above the poverty line — decreased 0.3 percentage points, from 22.7% to 22.4%, the lowest level since the June rate of 21.7%. But a detailed LISEP report in April analyzing the TRU in the nation’s largest metro areas shows this rate ranges from a low of 11% to a high of 46%. Driven by a booming tech sector and ample affordable housing, the Space Coast of Florida leads the nation in the percentage of workers with living-wage jobs with a TRU of a mere 11.1%, while two Texas regions lead the nation in “functional unemployment,” with one community, McAllen, approaching 50%.
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In the News:
More Analysis From LISEP:
The Informal Economy: LISEP Study Busts Myths, Reports the Facts on Gig Work and Side Hustles??
LISEP’s report in late November on the informal economy dispelled the myth that low-income Americans are better off than reported due to “off-the-books” income. Even when accounting for unreported earnings, more than one-in-five American workers are still unable to find full-time employment or generate income lifting them above the poverty line, the study shows. The informal economy study digs deeper into the living-wage employment picture by including paid work that goes unreported and found that on average, factoring in informal income reduces overall functional unemployment by only 1.1 percentage points, with women, Black, and Hispanic workers most likely to tap into the informal economy to make ends meet. See the full report here, or the executive summary here.?
In the News:
More Analysis From LISEP:
Bay Area First, Fresno Last for Livability in LISEP Rankings of 50 Largest Metro Areas
A LISEP study released in November found that even though middle- and working-class Americans face substantial economic challenges nationwide, residents in some regions fare better than others. For instance, the study indicates that the high cost of living is more than offset by high wages in the San Jose and San Francisco markets, making the Bay Area the best performing region for middle- and working-class households among the country’s 50 largest Metropolitan Statistical Areas (MSAs). Meanwhile, a net loss in real wages and the skyrocketing price of housing pushed Fresno, Calif., to the bottom of the list, according to the analysis. LISEP conducted the study utilizing a series of in-house metrics combined with other metro-specific data to offer a more accurate and detailed understanding of the economic well-being of middle- and working-class Americans in each MSA, including the TLC, TRU, True Weekly Earnings (TWE), and the True Rate of Unemployment Out of the Population (TRU OOP).? ?
In the News:
The Price of Fun — and Everything Else — Is On The Rise
From a holiday celebration to a family road trip or even a meal at the local diner, most middle- and lower-income families may find it necessary to take on debt just to enjoy even the most basic quality of life activities, according to LISEP research released in February. LISEP’s Minimal Quality of Life (MQL) Index identifies seven basic common recreational activities and tracks their cost over time, finding the cost of these minimal recreational activities has increased 38% between 2001 and 2021 for the average American family, and more than 50% for a family with three children.?
Meanwhile, an October report updating LISEP’s True Living Cost (TLC) Index — a measure of price changes for the minimum adequate needs required to maintain a basic standard of living — shows that last year middle- and working-class families felt the biggest crunch on their bank accounts since 2004, with a 7.8% year-over-year increase. ?
In The News:
More Analysis From LISEP: