The official jobless rate is so low the Fed thinks the economy is at full employment. But a gauge of the ‘functionally unemployed’ keeps climbing Fortune
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The official unemployment is so low that Federal Reserve policymakers see it as a signal the economy is at or near full employment. Fed Chairman Kevin Warsh said as much during his speech in Jackson Hole, Wyo., on Friday.
As a result, the Fed's attention is now fixed on fighting inflation, instead of the other part of its dual mandate, namely supporting the labor market.
But the Ludwig Institute for Shared Economic Prosperity doesn't have such a rosy view on the workforce. It has a True Rate of Unemployment that measures the "functionally unemployed," who include the jobless, those involuntarily working part-time, and those earning a poverty wage.
That score saw its fourth consecutive increase in July, contrasting with the official jobless rate that has been steadily declining this year. The share of the labor market that's functionally unemployed is now at 24.9% and has climbed 1.3 percentage points since March.
Similarly, LISEP's measure of the percentage of the working-age population not functionally employed—including those who dropped out of the labor force—hit 53.8%, up 0.8 percentage points since the start of the year.
"Functional unemployment is moving higher while workforce participation is moving lower. If this continues, it would suggest the labor market is losing strength despite what we may see in the headline unemployment numbers," LISEP Chairman Gene Ludwig said in a release on Aug. 20."
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