Report finds 1 in 4 Americans are 'functionally unemployed' — should you be worried?

While America's unemployment rate remains steadily low, researchers have warned that a fair share of individuals are loosely attached to the labor force, or are "functionally unemployed." According to the Ludwig Institute for Shared Economic Prosperity's recent report, over 25% of the U.S. labor force can be categorized as functionally unemployed, which means that they are seeking but are unable to secure full-time employment or earn more than "poverty-level wages." The report suggests the share of functionally unemployed individuals is at its highest since 2021, contrary to what the official unemployment figures suggest.

According to data from the Bureau of Labor Statistics, the unemployment rate in the country is at 4.4%, while wage growth is steady. With employers adding only 584,000 jobs in 2025, the lowest growth rate since 2020, the economy is frozen in a "low-hire, low-fire" state. However, researchers at the Ludwig Institute found that functional unemployment is on the rise at a rather alarming rate.  In December, the share of functionally unemployed workers rose to 25.2% from 24.8% in November, marking the highest  "True Rate of Employment" (TRU) since June 2021. “Looking beyond monthly fluctuations, the broader labor market trends warrant close attention. The share of functionally unemployed workers has risen over the past year and returned to post-pandemic highs, pointing to ongoing challenges in access to full-time, living-wage employment," said LISEP Chair Gene Ludwig in the release.

The research suggests that by demographics, the TRU varied for communities as it rose 1.5% for both Black and Hispanic workers in December, standing at 29.6% and 28.5% respectively. Meanwhile, the same for white workers dipped to 23.2% from 23.3% in a month. Furthermore, by gender, the TRU for men increased 0.3% in December to 20.5%, and the same for women rose to 30.3% in December, from 30.1% in November.  “Low hiring is making it harder for new entrants to find work, contributing to higher functional unemployment. At the same time, persistently elevated functional unemployment rates for Black and Hispanic workers denote a higher prevalence of low wages and part-time work," Ludwig wrote in his report.

While experts have questioned the institute's methodology and the efficacy of its TRU figures as an economic indicator, the think tank argues that its research can highlight the condition of the often overlooked elements of the economy and the labor market. "By accounting for underemployment and poverty-level wages, the TRU offers a more complete picture of our economic health," Ludwig previously told Newsweek. He emphasized that the research shifts focus from simply asking people if they are minimally employed to asking if they are getting enough work to sustain a basic standard of living. 

"If we continue to define success as solely having a job, even if that job is just for an hour or more every two weeks, without asking whether that job pays enough to support living above a poverty wage, we are effectively blinding ourselves to the very structural challenges that we would hope policymakers are trying to address," LISEP's chair previously told the publication.

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