A Season for (Economic) Reflection

November 26,?2024

by Gene Ludwig, Chairman

Ludwig Institute for Shared Economic Prosperity (LISEP)

The holidays are upon us, a time for reflection and gratitude. Yet as we look back on the year, it’s clear—perhaps now more than ever—many Americans continue to face economic challenges. While headline statistics may show signs of progress, reporting near record-low unemployment at 4.1%, median weekly earnings up 1.5% in the last year, inflation moderating to 2.6%, and GDP growth at 2.8% ahead of tomorrow's estimate, the reality for too many is far less optimistic.

LISEP’s metrics, which are more closely attuned to the real-life experiences of low- and middle-income (LMI) Americans, offer a more comprehensive view of the economic landscape. The October True Rate of Unemployment (TRU) report—a measure of the “functionally unemployed,” defined as the jobless plus those seeking, but unable to find, full-time employment paying above poverty wages ($25,000 a year in 2024 dollars) after adjusting for inflation—highlights the persistent challenge of unemployment, revealing 24% of the labor force is functionally unemployed.?

LISEP’s True Weekly Earnings (TWE) report—which includes all participants in the labor force, unlike the Bureau of Labor Statistics (BLS), which includes only full-time, permanent employees—showed a much more modest increase than the BLS report: up 1.9% for Q3 but only 0.3% year-over-year.?

Moreover, CPI reports suggest our recent encounter with high inflation has subsided, but LISEP research shows that since 2001 the cost of basic necessities—food, shelter, healthcare, and other items that consume the budgets of most LMI families—has grown 1.3 times faster than headline statistics indicate.

And while GDP growth may suggest overall economic health, it fails to capture the uneven distribution of economic benefits, masking underlying economic challenges. As LISEP’s latest report shows, since 1992 GDP has grown 67% per capita, while median household income grew by only 31%.

Despite these challenges, there are reasons for cautious optimism this season. While high, the October TRU is more than a half percentage point lower than this summer. And though wages have been near-stagnant, recent data suggests a potential turning point with modest growth on the horizon.?

In the coming year, let us hope that policymakers will listen to the voices of the people and enact policies that truly reflect the needs and aspirations of working families. By challenging the limitations of traditional metrics and promoting alternative measures, we can gift low- and middle-income Americans the opportunity for a brighter future.

In the spirit of the season, we’re grateful for the opportunity to serve as a resource for you, policymakers, and the public. From the Ludwig Institute for Shared Economic Prosperity, we wish you and your family a happy and healthy Thanksgiving.

Best,

Gene

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In this month’s edition of The Ludwig Report:

●? The October True Rate of Unemployment showed very little change, ticking up 0.1 percentage points with mixed results across major demographics.

●? LISEP issued a new report in November examining the reliability of Gross Domestic Product (GDP) as a measure of economic health, finding the go-to headline metric does not present an accurate economic picture—particularly for LMI Americans.

●? Economic reporting indicates wage growth has outpaced inflation, but is that really the case? The New York Times investigates. ?

‘Functional Unemployment’ Shows Little Change in October

The U.S. “functional unemployment” rate saw a slight uptick in October, rising 0.1 percentage points, according to LISEP’s latest True Rate of Unemployment report.

The TRU—a measure of the “functionally unemployed,” defined as the jobless plus those seeking, but unable to find, full-time employment paying above poverty wages ($25,000 a year in 2024 dollars) after adjusting for inflation—rose in October from 23.9% to 24%. Similarly, the official unemployment rate issued by the U.S. Bureau of Labor Statistics (BLS) remained unchanged at 4.1%. While the overall TRU rose, White workers saw an improvement, with their TRU decreasing by 0.4 points to 22.5%.

Hispanic workers also posted some gains in October, with a TRU dropping from 28.2% to 27.9%. But the rate of the total Hispanic population without functional employment, as measured by the True Rate of Unemployment Out of the Population (TRU OOP), is higher than last month (51.7% vs. 51.1%) due to a lower labor force participation rate—which appears to be a result of low-wage earners leaving the workforce. Black workers saw their TRU rise 1.7 percentage points, from 25.2 to 26.9%.

See the full report here.

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LISEP Report: GDP is Poor Measure of Nation's Economic Health?

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While U.S. Gross Domestic Product (GDP) growth has been robust in recent years, the average American has experienced a far more modest increase in income—less than half that of per capita GDP—an indication GDP may not be the best indicator of the nation's economic health, according to a new LISEP report.

LISEP’s new white paper Unmasking GDP: A Closer Look at the Illusion of National Prosperity reveals a stark disconnect between national economic growth and individual prosperity. While the U.S. economy surged 118% (67% per capita) after adjusting for inflation between 1992 and 2023, the median American household experienced a mere 31% increase in income. As the nation’s go-to metric for assessing the health of the economy, relying solely on GDP to produce an accurate economic picture can lead to misplaced economic policy, according to LISEP.

Shortcomings of GDP as a measure of economic health include overlooking uneven growth across income distributions and geographies, overreliance on market prices to assess the value of economic production, and limitations in valuing the economic impact associated with the data economy. For instance, LISEP’s analysis reveals significant regional disparities in economic growth. While the national GDP increased by 45.4% between 2001 and 2021, the experiences in different regions varied significantly—San Francisco’s GDP grew 87.4%, while the New Orleans economy contracted 5.2%.?

See the full white paper here.

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Have Wages Really Outpaced Inflation? Depends on Who You Ask

The New York Times recently took a deep dive into the widening gap between official statistics and the economic reality for millions of Americans, which echoes findings from LISEP’s True Weekly Earnings (TWE) and True Living Cost (TLC) metrics. NYT reporter Ben Casselman touches on how incomplete conventional reports can be, with traditional metrics often overlooking key variables, like what types of pay they include or the impact of labor market shifts.

As working-class families struggle to make ends meet, the TLC highlights the disproportionate rise in the cost of basic necessities, outpacing the CPI by 1.3 times since 2001. Casselman’s article further underscores this point, echoing that traditional metrics can mask the economic strain felt by everyday Americans. A more transparent measure of economic growth is needed to accurately reflect people’s true experiences.

See the full article here.

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