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The unemployment rate for the bottom quartile of Americans is 23%

Brian Cheung
·Reporter
·2-min read
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The national unemployment rate fell to 6.3% in January, but the Federal Reserve says that the unemployment rate for the lowest wage quartile of workers is closer to 23%.

An analysis from the Fed using ADP payroll processing data shows that when dividing the labor force into four quartiles by hourly wages, the top-earning quarter has almost fully recovered its employment losses during the pandemic.

The Federal Reserve's analysis of ADP payroll processing data shows that job losses are returning for the lowest-wage workers. Source: Federal Reserve
The Federal Reserve's analysis of ADP payroll processing data shows that job losses are returning for the lowest-wage workers. Source: Federal Reserve

The middle half of workers have also seen steady return in employment since the depths of job losses in spring 2020.

By comparison, the lowest-earning workers have had more trouble returning to work, likely owing to the high-contact nature of many of those jobs.

A more concerning trend has been the return of job losses among the lowest-wage workers, which appears to have picked up as virus cases surged across the country in the winter.

The New York Fed earlier this month used a different data set (from IPUMS-CPS and IPUMS-USA) and observed a similar tilt down in low-wage employment, but showed high-wage employment actually above pre-pandemic levels.

K-shaped recovery

The figures illustrate the widening gap between high-income and low-income workers through the COVID-19 economic recovery, raising questions about what policymakers can do to keep the poorest households above water.

“Jobs are still down by 10 million relative to pre-COVID levels, and COVID has disproportionately harmed certain sectors, groups of workers, businesses, and states and localities, leading to a K-shaped recovery,” Fed Governor Lael Brainard said Wednesday.

The difficulty in recovering high-contact and low-income jobs has also disproportionately affected Hispanic and Black communities, with prime-age unemployment at higher levels compared to White rates.

Fed Chairman Jerome Powell told Congress that the economy is far from employment levels prior to the pandemic. Powell said that even across all wage-earning groups, the headline 6.3% unemployment rate is likely understating true job loss.

Economists have pointed out that the Bureau of Labor Statistics does not account for people who have given up on looking for jobs in that “U-3” rate, which would bring the unemployment rate closer to 10% when also incorporating misclassification issues in data collection.

“There’s a lot of slack in the labor market and a long way to go to maximum employment,” Powell said in testimony to the House Financial Services Committee on Wednesday.

Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.

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