Bifurcated Economy and Unemployment Rate
I've been following the concept of a bifurcated economy and am curious about others' perspectives. From where I stand, it seems the unemployment rate is being artificially lowered by the gig economy that the BLS hasn’t been able to accurately capture.
In my city (NYC/Chicago/LA), the unemployment rate is around 5%, which feels misleading given that about a third of my social and professional circle has been laid off in the last year. Of those, only 40% have found full-time jobs, while the rest are juggling part-time gigs (like Uber driving or bartending) as they struggle to find stable employment. Every time I check LinkedIn, I notice another 3-4 connections who have been let go.
Since June 2023, job gains have been exclusively in part-time positions, with full-time jobs down by 1.1 million. Locally, 3% of people rely on gig work like driving or delivery as their primary income, yet many struggle to make a living wage. From my own experience with DoorDash in college, I estimate that half of these workers aren't earning a sustainable income. This leads me to believe the real unemployment rate could be closer to 7% since most of these workers can’t afford to sustain themselves and the low startup costs of being a delivery driver.
Personally, think this is why the current administration is getting killed on the economy by voters especially among young people. I’m 28 and everyone I know is either doing very well professionally or can’t afford rent with no middle ground.
Do you believe we’re underestimating the unemployment rate due to gig work being inaccurately tracked? Are my observations more noisy given my age and location being in a large city?
Based on the most helpful WSO content, here are some insights related to your observations about the bifurcated economy and unemployment rate:
Key Points on Unemployment and Gig Economy:
Labor Force Participation Rate:
Gig Economy and Employment Data:
Unemployment Rate Trends:
Economic Perception and Reality:
Impact on Young People:
Observations and Implications:
Underestimation of Unemployment:
Age and Location Factors:
Conclusion:
The bifurcated economy and the rise of the gig economy have indeed complicated the measurement of unemployment and economic well-being. While official statistics might show a rosy picture, the reality for many, especially young people in large cities, can be quite different. Your observations align with broader concerns about the accuracy of unemployment data and the economic challenges faced by gig workers.
For further insights, you might want to explore more discussions and threads on Wall Street Oasis related to labor market trends and the gig economy.
Sources: Sacking Inflation | The Daily Peel | 9/13/22, Inflation’s Down, but Don’t Get Too Comfy Yet | The Daily Peel | 11/15/22, Too much employment? | The Daily Peel | 12/6/21, A Contrarian View - Raging Bull, Too Many Jobs | The Daily Peel | 10/10/22
Pretty much what I'm seeing too. Many people (age 35-45) got laid off in different industries and about half were unable to find anything after a year, and are now just taking a career break, working retail or trying to run their own business. The rest are getting paid well due to RSU appreciation in tech but don't feel secure in their jobs to make major purchases like houses or having kids (which is kind of a purchase too) that they have not already made. The blue collar people I know feel much more secure but also think their wages are worth much less than 5 years ago. The employed people are still spending on other things though, which maintains demand for part time retail/hospitality jobs.
There is also a trend from early 2023 on where you can only get an interview if your last job was identical to the one you are interviewing for, unless you have a fairly senior personal contact. I think this is due to resume/linkedin filtering algorithms and recruiters/HR trained to screen for that. It was much less of a thing from 2008-2022. Also it seems a large number of white collar job postings (maybe over 50% at large firms) are fake in some way. It's either a generic role that always stays up, a placeholder for an internal promotion, H1B to green card conversion, or an old posting that was never removed because the recruiter was fired. I encountered all of these things with different jobs last year. So the Fed going by job posting numbers seems very questionable.
Appreciate the insight and you sharing your experience.
One other thing I’ve noticed and am curious if you or others have experienced is the amount of people here illegally who are now driving for Uber or making deliveries from DoorDash. I order out 2-3 times a week and 3/4 of the time it will be someone named Sarah or Veronica but some 6 ft tall dude who is very clearly a man not a trans or non binary person who speaks no English that will show up. Additionally, several women I’m friends with have even reported drivers showing up with 2 different names (Uber name is John but actual name is Vlad or Cesar) driving them in different directions than where they’re trying to go and arguing with them when confronted about it in broken English. One even thought she was potentially being kidnapped late at night because the guy was driving to the complete opposite side of town than where they were going (think driving to Williamsburg when trying to get to Harlem).
The state I live in allows pretty much everyone including non citizens to get drivers licenses, which is probably driving this problem but it’s pretty insane to me. I was able to make $20-25/hour 4-5 years ago after expenses and it seems now you’re lucky to make minimum wage before taking expenses or the degradation of the vehicle into account.
I've seen it a few times but don't use uber/lyft that often. Apparently some retail jobs like Trader Joe or Apple stores are less stressful and pay similarly.
One place where the data is very misleading is the CPI, it understates how much wages have been devalued relative to assets since 2020. If you look at (monthly mortgage payment)/(after tax income) for a new buyer, it has gone up by over 300% in some areas since 2019. It means the value of say, a $500k job over a $300k one is lower than it used to be. Either way you won't be able buy the type of home someone got 10-15 years ago on $200k job. Corporate executives always say Gen Z doesn't work hard, but they are smart enough to see that there is no point to working hard. Maybe it's better to take the lower paying, lower effort job and try to bootstrap another business at the same time to have a small chance of a really outsize return.
There’s a Bezos quote about if the data is saying one thing, and all the anecdotes are saying another, the data is usually not capturing the situation correctly and something is wrong with it. This sounds like what you are describing OP.
Do y’all think this will ease out and solve itself? Especially if the FED cuts rates? Or is this a “hidden” time bomb?
Hard to say with all the uncertainty in the macro backdrop but think it’s all dramatized to some extent from the companies end. Where we’re at historically is not out of the norm from a rates perspective and I think companies are just whining because money isn’t free anymore. If you look at their balance sheets many of them are rock solid, which makes me think that anything other than a mild recession is unlikely.
I think the FED cutting rates helps things because it will lower the cost of capital but I don’t see it really being a catalyst for massive hiring or growth. The biggest catalyst to me is the presidential election which I think will be positive regardless of who wins. Trump is anti regulation and will cut taxes and while Harris will raise taxes she’s likely to get rid of Lina Khan who’s been going after tech and other monopolies which I think is at worst net neutral for the economy.
I do feel though that the ticking time bomb is the bifurcated economy and excessive government spending, which we aren’t going to be able to outgrow at least in the near term. Personally, think the COVID stimulus is going to go down as one of the most destructive pieces of fiscal policy to ever be written. It basically was an interest free loan to boomers who saw their wealth triple or quadruple at the expense of future generations.
In line with that thinking we’re probably headed towards something big though as a society. Young people are experiencing first hand that we’re becoming a nation of renters instead of owners, which I think is a terrible precedent to set. If people don’t have any ownership over anything then they don’t have any incentive to uphold the communities in which they live in. During the riots in 2020 I distinctly remember the looters coming disproportionately to wealthier neighborhoods and I think that’s going to be an ongoing trend moving forward. These people were upset they owned nothing then but are now exponentially poorer than the last time out, which I think is going to come to a boil at some point. If I were a wealthy person today this would probably be the thing that I’m most worried about.
Exactly, the excessive covid stimulus will leave most of Gen Z in developed countries (anyone without rich parents) poorer than previous generations no matter what they do, and there is nothing any politician can do it about now. This is also a very worldwide phenomenon and is even more severe in China and Europe. When people see their life getting worse and no way out of it no matter what they do, there will either be quiet resignation ("lie flat" and "let it rot" in China) or violence (BLM riots).
Really interesting topic, hope more will weigh in.
Yes, I think the unemployment rate is underestimated for exactly the reasons you say.
Furthermore, even if the unemployment rate was accurate, there is the other problem that labor force participation is down because people give up finding work. So it's quite misleading even when properly tabulated.
The following is a slight change of topic, but it's jumping off something you said.
I think white collar work really overheated during the post-pandemic run up, and it was overheating before that too. Even in the 2014-19 timeframe it felt anecdotally like way too many white collar folks were doing way too well . . promotions left and right, big salaries for mediocre people, no sense of fear that anyone might see their pay level stagnate or (heaven forbid) actually decline.
Granted everything I'm saying above is anecdotal. But it's a lot of anecdotes over a long period of time and multiple US markets.
So I was thinking it all needed to rationalize at some point, and that was before November '22 when ChatGPT came in and provided a whole other reason to question the optimistic career prospects of knowledge workers.
My question for anyone who has a view is: what are the downstream effects of a mild-to-medium pullback in demand for knowledge workers? It feels like that crowd drives a huge portion of the profitability of consumer discretionary businesses. All the high margin things people spend money on . . brands, travel, restaurants, services etc etc . . feels heavily dependent on on the upper-middle income "busy" crowd deciding that throwing around an extra $50-100 daily on these frivolous things is not material to their budget.
Appreciate your thoughts and find your prospective on the 2014-2019 time period interesting as someone who was in college that entire time (undergrad -> grad school). Since leaving school in 2019 I feel like I had 9 months of normalcy in a professional setting before all of this chaos occurred and that hasn’t really let up to this point so it’s hard to compare this to past cycles.I have some thoughts and they’re not very optimistic as a fair warning.
I think that you’re probably overestimating how important the upper middle class is on overall spending. I think what we’re going to see moving forward for many knowledge workers is a rightsizing approach given these people effectively subsidize the tax loopholes HNW and UHNW people use by paying 50% or more of their incomes in tax. These HNW and UNHW people are now seeing that you can cut 10-20% of your workforce without being scrutinized by the government and have no business consequences (no productivity drop off and maintaining or growing revenue). So I think the game moving forward and that’s currently underway is figuring out where that new equilibrium point for everything is.
I don’t think this is necessarily a bad approach in the short term however long term I’m very skeptical as there will come a point where these people get so ungodly wealthy that they’re not going to be able to hide in plain sight anymore. Some of the developments I’m already seeing playing out and think will trickle to other industries is a shift from luxury to ultra luxury. The previous generation had aspirational brands like the Ritz Carlton, St. Regis, Four Seasons, etc. that were expensive but not out of the reach for an upper middle class family. Contrast that with today where those properties are being disproportionately replaced with ultra luxury places like Aman Resorts, Six Senses, etc. that instead of costing $500/night cost $7,000/night. I think these ultra luxury buyers are ultimately who are going to replace a most if not all of the spending lost from the upper middle class. One data point that supports this is if you follow Disney’s earnings the most rapidly growing consumer segment of the past 5 years has been the experiences business (forget exact terminology) within parks. This is effectively a covert way of saying wealthy people and what they’ve been doing is instead of selling people a fast pass you add another tier that allows you to skip the line altogether. In exchange for like $5K you get a personal escort to walk with you around the parks and escort you to the front of whichever ride or activity you want. I think this logic also applies to many fashion brands, travel, services, etc.
Where you’ll probably see the most dramatic pullback though will be in the restaurant sector just due to the sheer amount of them. Given food costs have exploded I think you’ll see a major crowding out effect where the middle class of restaurants gets crushed and the only ones that survive will be the very high end and the lower end of the spectrum. Nobody is going want to go to the local Italian spot and pay $40 for entrees when they can go to Via Carota and get the Tagliatelle and Rigatina for $60.
Ultimately, it seems like we’re headed for some kind of second gilded age. We have the capability to create economic value (Nvidia created $400Bn in value in an afternoon) it’s just going to continue to go into fewer and fewer hands, which is frustrating. It’s only going to get worse too once Starlink is fully rolled out and will definitely make Elon a trillionaire. They control 80% of low orbit satellites and I think he’s going to become more powerful than every government on earth except the US and China, which is concerning as I don’t think he’s necessarily a decent human being.
No idea how this ends but am somewhat encouraged that the government is starting to anti trust bring cases against big tech who are by all means unregulated monopolies. I think this is ultimately how all of this is going to get undone to a certain extent and help regular people as 80% or more of revenue in many industries are controlled by 4 or fewer companies.
Great comments, very interesting.
In terms of your last question on how it might all end. I don't want to get too prescriptive/specific because the specific outcome is probably less important than the general one. I think the general outcome is some form of UBI. Not saying it will look anything like what people think of as UBI.
I think it could take a form that's already happening today: random shots of of stimulus that land in unpredictable places but add up to a UBI effect. Just since Covid we've had PPP, then stimmies to individuals, then student loan forgiveness, and now our leading presidential candidate wants to give first time homebuyers $25k.
To me it all seems like a way to enact UBI while avoiding whatever political costs are involved in admitting its UBI.
Great comment, I'll take it a step further and share what I've been noodling on. What if that kind of demand was a function of ZIRP and we are rebasing to a "new normal" so to speak. Not just for knowledge workers, but across the board. The natural rate of unemployment is not a static number, what if we're regrounding to a new equilibrium with the current macro.
Yep that's how I think about it. Like how many people does the world really need in terms of labor. There will be technologists who say that every new technology just creates more jobs but over the long haul that doesn't make sense. Assisting blue-collar work with machinery reduced demand for blue collar human labor, and now we're going to see the same happen to the white collar workforce. ZIRP may have been an early response to those developments, intentional or not.
Pretty much what you describe was due to 0% borrowing rates for about a decade that went away when the FED raised rates in 2022. DEI stuff also started going away when 0% money was gone. A prominent example was BlackRock getting rid of its DEI fun. Pretty much 0% money allowed a fake prosperity for a short period of time
I parse millennials into 2 categories. The ones who bought a house before or during COVID, and the ones who didn’t.
You can look at all housing data you want. I’ve lived in NJ my whole life and have been helping my dad look at other properties for investing in NJ, FL, and DL and the prices are just fucking absurd. The price of home ownership has jumped 100-200% in some communities for reasons that cannot be answered by inflation from either the demand or supply side lol.
People have just been so used to a ZIRP economy (one that mutes a lot of consequences) that now that a myriad of companies have started tapering back, it has completely shocked the labor force, one that was accustomed to finding a new job 3 months after getting laid off or leaving. There really hasn’t been any uncertainty since the temper tantrums in 2015, and the Fed lowered rates as fast as possible in that era anyways.
I truly sympathize with everyone who got impacted in this market, and understand it is not as easy as just contacting your network or applying on Linkedin. I cannot speak for a potential rebound as I’m not a crystal ball holder, but things DO generally get better as rates lower. I’d imagine that the fear factor of getting fired is making a big comeback, that post recession feeling.
That price increase is just inflation not captured by CPI. It also means that homeowners have a much higher net worth but don't feel any richer, since they cannot sell the home and buy a similar home at the much more mortgage rate. In other words, the value of dollars and work paid in dollars is much lower now than in 2019, to a much bigger degree than CPI or PCE captures. People are still spending on things but using the money they would have spent on the big ticket items (houses, college and kids) and giving up on those things. I suspect the total spending has come down if spending is measured the right way. Maybe this is why consumer confidence is still low.
I think there will be a rebound but at lower real wages, especially in the tech industry. The jobs will come back when rates fall but the high real wages from pre-2023 will not come back, just like finance pre-2008.
Yes the truth is coming out in earnings as a lot of these companies are saying that consumers did not in fact trade down they just stopped buying those discretionary products and opted to focus on necessities.
Real money is definitely less than 2021 but still up from pre pandemic by a significant amount because there is still back door QE.
Short-term debt is becoming a rising share of all outstanding debt, while the share of long-term debt — like 10-year or 30-year bonds — stays flat. In turn, critics say the lower supply is preventing long-term interest rates from going up. Those rates influence borrowing costs across the economy.
I came across an interesting article on this issue:
https://brownstone.org/articles/recession-since-2022-us-economic-income-and-output-have-fallen-overall-for-four-years/
Basically the CPI doesn't measure inflation properly at all.
Random thoughts:
Whenever there is disconnect between official data and anecdotes, it makes you question the validity of the data.
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