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Q3 2025 Economic Report: Declining Earnings and Rising Functional Unemployment

The latest economic report from the Ludwig Institute for Shared Economic Prosperity (LISEP) highlights a troubling trend for middle-income workers in the United States. According to data released on December 4, 2025, middle-income earners are grappling with reduced earnings compared to a year ago, as the measure known as 'functional unemployment' approaches a staggering 25%.

LISEP's recent findings include their September True Rate of Unemployment (TRU) and Q3 2025 True Weekly Earnings (TWE) reports. Unfortunately, the release was significantly delayed due to the recent federal government shutdown, which suspended crucial data collection by the labor department. As a result, there will be no TRU report for October, leaving many to wonder about the current state of the job market.

Understanding True Rate of Unemployment

The TRU is an extensive measure that accounts for not just those who are currently unemployed but also individuals searching for full-time positions that pay above poverty wages, which for 2025 is capped at $26,000 yearly. TWE, on the other hand, gauges the median weekly earnings for all workforce participants, encompassing both part-time workers and those actively seeking jobs. In contrast, traditional figures released by the Bureau of Labor Statistics (BLS) only cover full-time employment.

Despite a slight increase in TWE from Q2 to Q3, a minimal rise of 0.1% has been overshadowed by a year-over-year drop of 0.1%. For comparison, BLS numbers indicate a 0.7% quarterly increase in earnings, depicting a more optimistic employment landscape that LISEP claims does not reflect the full reality for many workers. Gene Ludwig, Chair of LISEP, remarked that the current data reveals how low- and middle-income families are being financially squeezed; they face rising costs of living while wages stagnate.

The Financial Squeeze

The report revealed concerning statistics across various income levels. The 25th-percentile TWE decreased by 0.5% in Q3 and has dropped by 2.1% since Q3 2024 to $617 weekly. Meanwhile, the earnings for those at the 75th percentile saw a rise of 1.3%, increasing to $1,717 weekly, while the 90th percentile experienced a slight decline of 0.6%, remaining at $2,689. Such disparate outcomes illustrate a growing income gap between the higher earners and middle-income workers.

Demographic analysis further uncovers a disparity in earnings among different racial and ethnic groups. The TWE for Black workers fell by 0.4% to $835, while Hispanic workers gained a fraction of 0.1%, reaching $814. In comparison, earnings for White workers increased by 1.6%, landing at $1,151, and Asian workers saw a 2% rise to $1,340.

Trends in Functional Unemployment

Functional unemployment, which also experienced a slight increase of 0.2 percentage points in September, highlights an alarming statistic: 24.9% of the workforce is categorized as functionally unemployed. Within this demographic analysis, improvements were noted among Black and Hispanic workers, but they still remain higher than the overall area. The TRU for Black workers noted a slight decrease to 27.7%, while the rate for Hispanic workers saw a decrease to 27.5%. Conversely, White worker unemployment increased slightly to 23.6%. The report indicated that women's functional unemployment declined to 29.8%, but men experienced a concerning increase to 20.5%.

As we approach the holiday season, these numbers paint a grim picture. The inability of one in four workers to obtain full-time jobs that pay above the poverty threshold suggests a critical issue within the labor market that threatens the financial stability of many families across the nation.

Looking Forward

The findings from LISEP urge immediate attention toward the growing affordability crisis facing working families. With continued increases in essential living costs coupled with stagnant earnings, the economic outlook for middle-income households remains daunting. These insights serve as a call to action for policymakers and the public to tackle these pressing issues head-on, striving for a more equitable distribution of economic prosperity.

As we look ahead, continued monitoring of these trends is essential to understanding the broader economic landscape and the livelihoods of American workers. Understanding the true rate of unemployment is crucial for developing informed and effective policy measures that enhance the economic well-being of low—and middle-income households across the nation.