'Informal Economy' Ineffective in Offsetting Poverty-Level Employment for Most Workers, According to Ludwig Institute

 'Off-the-books' income does little to improve finances of low-income workers, study finds

WASHINGTON, Oct. 23, 2025 /PRNewswire/ -- Nearly 670,000 Americans earn income through "off-the-books" work each day, but this informal economy does less than is often believed to help low-income workers rise above the poverty line, according to a new study by the Ludwig Institute for Shared Economic Prosperity (LISEP).

To determine the impact of the informal economy, the study used LISEP's True Rate of Unemployment Out of the Population (TRU OOP) metric—a measure of functional unemployment rate which includes anyone aged 16+ who is jobless, involuntarily part-time, or earning below poverty-level wages. The findings show that if informal earnings were included in the 2024 calculations, the functional unemployment would have dropped only 0.9 percentage points.

Despite the number of informal workers being half of 2023 levels, the impact on functional employment was nearly identical. LISEP attributes this to more formally employed workers supplementing their incomes with informal work compared to the previous year.

"Most workers turn to the informal economy out of necessity, not choice—an effort to make ends meet when traditional employment falls short," said LISEP Chair Gene Ludwig. "But the reality is stark: this kind of work rarely lifts people above poverty-level wages. It's the difference between drowning in 15 feet of water instead of 20."

LISEP found that about 668,000 Americans engaged in informal work on an average day in 2024—the lowest level on record, compared to an average of 960,000 per day over the past three years (roughly 0.36% of the working-age population). The decline in informal work from 2023 to 2024 had little bearing on functional employment.

Certain groups remain overrepresented in informal work, particularly women, younger workers (18-24), and those who are working part-time for economic reasons—groups that tend to fare worse in the labor market and therefore are more likely to be functionally unemployed. Over the past three years, 46 out of 1,000 women report working informally, compared to 25 out of 1,000 men.

"It's a persistent myth that off-the-books income greatly improves people's financial well-being," Ludwig said. "What Americans truly need is access to stable, full-time employment that supports a decent standard of living, not a patchwork of side hustles that leave them falling further behind." 

About The Informal Economy
LISEP issued the white paper "The Hidden Workforce: The Impact of the Informal Economy on Functional Employment" in 2023 as part of its ongoing analysis of the functionally unemployed, defined as workers who are jobless, plus those seeking, but unable to find, full-time employment paying above the poverty line. LISEP's measure of the functionally unemployed, the True Rate of Unemployment (TRU), is tracked monthly on the LISEP website at https://www.lisep.org/tru.

About LISEP 
The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by Ludwig and his wife, Dr. Carol Ludwig. The mission of LISEP is to improve the economic well-being of middle- and lower-income Americans through research and education. LISEP's original economic research includes new indicators for unemployment, earnings, and cost of living. These metrics aim to provide policymakers and the public with a more transparent view of the economic situation of all Americans, particularly low- and middle-income households, compared with misleading headline statistics. On X: @LISEP_org.

About Gene Ludwig 
In addition to his role as LISEP chair, Gene Ludwig is a managing partner of Canapi LLC, a financial technology venture fund. He is the founder and CEO of Ludwig Advisors, which counsels financial firms on critical matters. Ludwig is also the founder of the Promontory family of companies. He is the former vice chairman and senior control officer of Bankers Trust New York Corp. and served as the U.S. Comptroller of the Currency from 1993 to 1998. He is also author of the book The Vanishing American Dream, which investigates the economic challenges facing low- and middle-income Americans. His new book, The Mismeasurement of America, was published Sept. 30 and is now available wherever books are sold. On X: @geneludwig.

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SOURCE Ludwig Institute for Shared Economic Prosperity