A new analysis argues that traditional unemployment numbers may be understating the real strain in the U.S. labor market, warning that nearly a quarter of American workers are “functionally unemployed.”
The Ludwig Institute for Shared Economic Prosperity (LISEP) estimates that 24.8 percent of workers fell into this category as of November. In LISEP’s framework, “functional unemployment” includes people who are out of work, those actively seeking jobs but unable to find full-time employment, and workers earning what it defines as “poverty wages” — $26,000 a year or less.
The group’s metric, the “True Rate of Employment” (TRU), dipped 0.1 percentage points since its prior report in September, but is up 0.7 points compared with a year earlier.
Why It Matters
LISEP says its approach offers a broader picture than headline unemployment statistics, which it argues can be misleading when they don’t fully capture underemployment or very low wages. Critics, however, have questioned whether these factors should be rolled into a single index and whether the resulting figure is the most useful way to understand labor-market health.
What To Know
The most recent employment report from the Bureau of Labor Statistics (BLS) — released in mid-December after delays tied to the government shutdown — reported that the U.S. added 64,000 jobs in November, while the unemployment rate rose to 4.6 percent, the highest level since September 2021.
LISEP, which uses BLS survey data as inputs, says the roughly 20-point gap between the official unemployment rate and its own “functional unemployment” rate reflects two key additions: (1) workers who want full-time roles but can’t secure them, and (2) adjustments that account for employment that still leaves workers earning at poverty-level income.
The report also highlights disparities across groups. LISEP estimates TRU at 28.1 percent for Black workers and 27 percent for Hispanic workers, compared with 23.3 percent for White workers. By gender, the organization estimates women’s TRU rose to 30.1 percent in November, while men’s edged down to 20.2 percent.
Some economists remain skeptical about compressing multiple labor and income indicators into a single headline metric. Labor economist David Card previously said it can be valuable to track poverty rates and various measures of unemployment and related indicators — but whether they belong in one combined index is debatable.
LISEP Chair Gene Ludwig, meanwhile, argues that both LISEP’s findings and the government’s data point in the same direction: a labor market that has become harder to navigate, particularly for households already under financial pressure.
Job growth has been modest in 2025, and a wave of layoffs late in the year appears to have disrupted the “low hire, low fire” balance Federal Reserve Chair Jerome Powell described in September. The outplacement firm Challenger, Gray & Christmas reported 71,321 announced job cuts in November — 24 percent higher than a year earlier — bringing 2025’s running total to nearly 1.2 million, the highest since 2020.
What People Are Saying
LISEP Chair Gene Ludwig wrote in Wednesday’s report: “With the official unemployment rate at its highest level since 2021 and functional unemployment remaining elevated, many households are feeling the effects of a labor market that has grown less forgiving. Stagnant wages and elevated prices for basic necessities continue to stretch household budgets, pressures that tend to be felt most acutely during the holiday season.”
What Happens Next
The Department of Labor is set to release the December employment report on January 9. Forecasts from Trading Economics anticipate another soft month for hiring and a slight uptick in unemployment to 4.7 percent.
