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Rising Functional Unemployment and Declining Wages in Q2 2026

The economic landscape of the United States has shown disturbing trends in the second quarter of 2026, as revealed by the latest reports from the Ludwig Institute for Shared Economic Prosperity (LISEP). The study highlights an increase in functional unemployment, a measure that encompasses joblessness, involuntary part-time employment, and poverty-level wages, while the median weekly earnings adjusted for inflation saw a year-on-year decline.

The True Rate of Unemployment (TRU) issued by LISEP indicates that functional unemployment rose by 0.1 percentage points in June, ending at 24.7%. This marks the third consecutive month of increase, with an average TRU of 24.5% over the previous three months. While these figures show some improvement compared to averages in late 2025, they still reflect an alarming reality for many Americans.

In conjunction with rising unemployment figures, the True Weekly Earnings (TWE) report reveals that real median earnings in Q2 2026 declined by 0.5% to $1,033 compared to the previous year. Notably, this figure has remained steady when compared to the previous quarter. In contrast, the Bureau of Labor Statistics reported a modest increase of 0.8% to $1,251 for full-time workers, despite a quarter-over-quarter drop. These contrasting statistics underscore the divergent experiences of workers within the labor market.

One of the most concerning takeaways is the disproportionate decline across income levels. Workers in the lower earnings brackets faced the steepest losses, with the 25th percentile seeing a 0.8% drop to $633 weekly, while the 75th percentile reported a 0.3% decrease to $1,741 per week. Even those in the 90th percentile experienced a 0.4% decline, to $2,773. Such declines highlight not just a minor setback but a concerning downturn for the most vulnerable segments of the workforce.

Gender and race also play crucial roles in this landscape. Although the gender wage gap narrowed slightly month over month, the year-over-year earnings declines showed a troubling trend for women, who experienced a 0.7% decrease in median TWE. In comparison, men faced only a 0.3% decline. Women’s median earnings increased by 0.3%, yet men experienced a larger decrease of 1.8%, leaving women earning about 78 cents for every dollar earned by men.

Breaking this data down further by demographics presents a mixed picture. Black workers enjoyed a 0.7% increase from the prior year, now earning $869 per week, while their Hispanic counterparts experienced a 1.8% rise to $852. Asian workers saw notable quarter-to-quarter growth, with earnings up 7% to $1,374, despite a more modest 1.5% increase year-over-year. Conversely, the TWE for White workers remained stagnant compared to a year ago, reflecting broader economic disparities.

As Gene Ludwig, Chair of LISEP, noted, while some metrics may suggest a healthier labor market, the increases in functional unemployment tell a different story. Low-income workers, particularly at the 25th percentile, are still losing ground amid positive economic indicators, emphasizing the need for a nuanced understanding of economic health.

Moreover, the TRU Out of the Population (TRU OOP)—which represents the percentage of the total U.S. population experiencing functional unemployment—rose to 53.6%, highlighting an alarming decrease in labor force participation. Most notably, prime-age workers, those aged 25 to 54, saw a substantial increase in functional unemployment, along with women, whose rates jumped to 29.4%.

In summary, while some initial signs of recovery are visible in the labor market, they must be weighed against the significant numbers of Americans grappling with economic instability. The data point to serious issues that need urgent addressing, particularly the challenges faced by low-income and minority groups. As these trends continue to unfold, they will undoubtedly shape the larger narrative surrounding the U.S. economy in the coming months and years.

For further details, insights, and data, interested individuals can refer to the full white paper available on LISEP's website.