A quarter of Americans are ‘functionally unemployed,’ according to a new report

Ludwig Institute report redefines U.S. unemployment reality

The Ludwig Institute for Shared Economic Prosperity released a report showing that more than 25 percent of the U.S. labor force was functionally unemployed.

Functional unemployment includes people seeking work who cannot secure full-time jobs or earn wages above the poverty level. The institute calls this measure the True Rate of Employment, or TRU.

According to the report, the TRU reached 25.2 percent in December, up from 24.8 percent in November. This marks the highest level since June 2021, even as official unemployment remains low.

U.S. unemployment rate masks deeper labor strain

Official labor data indicate the U.S. unemployment rate was about 4.4 percent in December 2025, according to the Bureau of Labor Statistics. Payroll employment expanded modestly in 2025, with December showing an increase of 50,000 jobs and overall growth lagging behind the prior years’ pace.

Employers added 584,000 jobs in 2025, the slowest annual job growth since 2020. Researchers describe the economy as being in a low-hire, low-fire state.

The actual rate of employment reached a post-pandemic high

LISEP reports that its broader unemployment gauge climbed to 25.2 percent, a post‑pandemic high not reflected in headline unemployment statistics. The institute noted that the increase reflects a year-long upward trend rather than a short-term fluctuation.

LISEP Chair Gene Ludwig stated that the data show ongoing difficulty in accessing full-time, living-wage employment. The report emphasizes that many workers are technically employed but economically insecure.

Functional unemployment rose despite steady wage growth

While average hourly earnings have trended modestly upward, broader measures that include part‑time and low‑wage workers suggest that income gains may not keep pace with cost‑of‑living pressures for many households.

The report highlights that focusing solely on wage averages ignores the many workers who fail to meet basic cost-of-living needs. Underemployment plays a central role in the rise in TRU figures.

Low hiring slowed access to full-time jobs

Job growth slowed in 2025, which may have made it more challenging for some workers to move into full‑time or higher‑paying positions. According to labor market observers, a softer hiring environment can limit opportunities for people entering or advancing in the workforce.

With fewer openings, workers already in marginal jobs face limited mobility. This reinforces the perception of functional unemployment even when layoffs remain low.

Black workers faced higher functional unemployment levels

The report shows that the unemployment rate for Black workers rose by 1.5 percentage points in December 2025. According to the functional employment indicator for this group, the share reached 29.6 percent. This rate was significantly higher than the national average reported by the institute.

Researchers attributed the increase to a higher prevalence of low-wage and part-time work. Limited access to stable, full-time roles continues to affect outcomes, even during periods of low official unemployment.

Hispanic workers also saw a rising employment strain

Hispanic workers experienced a similar increase in functional unemployment. LISEP’s expanded labor measure for Hispanic workers rose to 28.5 percent in December 2025, up 1.5 percent from the prior month. This placed the group well above the national TRU average.

The Ludwig Institute linked this rise to concentration in lower-paying sectors and part-time roles. These jobs often provide limited hours and minimal benefits.

White workers showed slight improvement month to month

Unlike other demographic groups, white workers saw a slight decline in functional unemployment. The adjusted workforce participation metric for White workers dipped to 23.2 percent in December 2025 from 23.3 percent in November. While modest, the change moved in the opposite direction of the overall trend.

The institute cautioned that this single-month shift does not signal long-term improvement. White workers still face elevated functional unemployment compared to pre-pandemic norms.

Women faced the highest functional unemployment rate

By gender, women experienced the highest level of functional unemployment. LISEP’s comprehensive employment measure for women rose to 30.3 percent in December 2025, up from 30.1 percent in November. This marked the highest rate among all groups tracked in the report.

The institute pointed to the prevalence of part-time work and lower average earnings as key factors. Many women remain employed but are unable to secure sufficient hours or income.

Men saw functional unemployment increase modestly

Functional unemployment among men also increased, though at a slower pace. The inclusive labor market indicator for men rose by 0.3 percentage points to 20.5 percent in December 2025. While lower than the rate for women, the increase reflects broader labor market constraints.

The report notes that limited hiring also reduces pathways into full-time work for men. Job retention remains strong, but improvements in job quality lag.

Researchers say job counts alone mislead policymakers

The Ludwig Institute argues that traditional employment metrics overlook underemployment and poverty wages. Counting anyone who works at least 1 hour every 2 weeks as employed distorts the accurate picture of economic health. The TRU metric adjusts for this by focusing on income sufficiency and hours worked.

Gene Ludwig stated that ignoring job quality blinds policymakers to structural labor issues. The report emphasizes the need to measure whether work supports a basic standard of living.

Think tank defends controversial employment metric

Some economists have questioned the methodology behind the True Rate of Employment. Critics argue it differs too sharply from standard labor indicators. The Ludwig Institute acknowledges the debate but defends the metric as a necessary supplement.

According to the institute, the TRU captures conditions faced by workers that are often missed in headline statistics. It accounts for underemployment and low wages that affect financial security. The goal is not to replace official measures but to provide a fuller picture of labor-market reality.

If this helps explain why the numbers don’t always match how work feels, it’s worth taking a closer look at how underemployment is affecting millions of Americans as job quality slips.

Functional unemployment highlights hidden economic stress

The report concludes that low official unemployment rates do not indicate broad economic stability. As of December 2025, more than one-quarter of U.S. workers faced barriers to full-time, living-wage employment. This disconnect has grown since 2021.

Persistent low hiring and uneven job quality have pushed functional unemployment back to post-pandemic highs. Certain demographic groups continue to face disproportionate impacts.

If the gap between the numbers and real life feels troubling, it’s worth digging into why Maryland’s unemployment system is now under scrutiny and what those failures reveal about the safety net.

What do you think about A quarter of Americans are “functionally unemployed,” a report says. What’s behind it? Please share your thoughts and drop a comment.

This slideshow was made with AI assistance and human editing.

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