Functional Unemployment Reaches Alarming Levels in the U.S. Labor Market

Alarming Shift: The State of Functional Unemployment in 2026

Recent data released by the Ludwig Institute for Shared Economic Prosperity (LISEP) reveals troubling trends in the U.S. labor market. As of December 2025, over 25% of the workforce is classified as 'functionally unemployed', a statistic that marks the highest rate since mid-2021. This category includes individuals who are jobless, seeking full-time work yet unable to find it, and those earning at or below poverty-level wages.

Understanding Functional Unemployment

The term 'functional unemployment' encompasses a broad spectrum of individuals affected by economic instability. According to LISEP’s December report, the True Rate of Unemployment (TRU) jumped from 24.8% to 25.2%, a notable rise indicating that more workers are struggling to secure sustainable employment that pays a living wage. This figure not only highlights the precarious nature of many jobs but also reflects lingering challenges within the post-pandemic economy.

Gene Ludwig, chair of LISEP, emphasized the need to scrutinize broader labor market trends. Despite a slight decrease in the official unemployment rate from the Bureau of Labor Statistics (BLS), the persistent issues faced by a significant portion of the workforce underscore a serious economic crisis. "The share of workers classified as functionally unemployed has steadily risen and is now back to post-pandemic highs, signaling ongoing difficulties in the quest for accessible, meaningful employment," he noted.

Impact Across Demographics

The report elucidates concerning disparities in unemployment rates across various demographic groups. For Black workers, the TRU rose by 1.5 percentage points in December to reach 29.6%. In 2025, their average TRU was a staggering 27.8%, highlighting a significant uptick from the previous year. Similarly, the unemployment rate for Hispanic workers rose to 28.5%, an increase that mirrors the struggles of Black workers in securing stable employment. Meanwhile, White workers experienced a minor drop in their unemployment rates, which were less severe compared to their minority counterparts.

Gender dynamics also played a significant role in this rising functional unemployment. Men’s TRU rose to 20.5%, while women’s rate reached a concerning 30.3%, illustrating the different challenges faced across genders when it comes to employment stability. The trends suggest a stagnant labor market where new entrants face hurdles in securing jobs, subsequently raising the levels of functional unemployment.

The Road Ahead

As 2026 unfolds, these statistics indicate a critical need for policymakers to address the underlying issues contributing to functional unemployment. With low hiring rates intensifying the problem, it is crucial to explore strategies aimed at enhancing job creation, improving wage standards, and fostering economic inclusivity. The persistent strains on Black and Hispanic workers require urgent, targeted interventions to mitigate their challenges in the labor market.

LISEP, founded in 2019, aims to enhance the economic well-being of middle- and lower-income Americans through comprehensive research and education. The organization emphasizes transparency and accuracy in economic indicators, striving to provide a clearer picture of the economic landscape for all. Their focus on developing new metrics around unemployment and earnings positions them as a critical player in informing social and economic policies that aim for equitable recovery.

In conclusion, the escalation of functional unemployment illustrates an urgent need for attention and action. As society grapples with persistent economic challenges, understanding and addressing the full impact of these dynamics will be essential in fostering a more resilient and inclusive labor market.

For further insights and data, visit LISEP’s official website.