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Recent Trends in Functional Unemployment in January 2026

In January 2026, a report from the Ludwig Institute for Shared Economic Prosperity (LISEP) revealed a decrease in the number of Americans labeled as 'functionally unemployed.' Dropping from a four-year high in December, the rate fell from 25.2% to 23.8%. However, this figure remains notably high compared to January of the previous year. The report highlights improvements across various demographic groups while also signaling a widening gender gap that merits further attention.

Understanding Functional Unemployment

The term 'functionally unemployed' encompasses not only individuals who are jobless but also includes those searching for full-time positions and those earning wages below the poverty level. LISEP's January report indicates that, despite the encouraging drop, the percentage of functionally unemployed people is still 0.3% higher than it was a year prior. The True Rate of Unemployment (TRU) has averaged 24.6% over the last three months, portraying ongoing challenges in the labor market.

Gene Ludwig, the chair of LISEP, acknowledged the positive trend while cautioning against overly optimistic interpretations. “Our attention should focus on whether this signals a lasting improvement or just a transient fluctuation amid a still-complex economic landscape,” he noted.

With the Bureau of Labor Statistics (BLS) reporting a slight decrease in the official unemployment rate from 4.4% to 4.3%, the landscape appears mixed. Although this suggests minor overall improvement, it cannot overshadow the deeper issues associated with functional unemployment.

Demographic Insights

The LISEP report illuminates varying impacts of functional unemployment across demographics. Notably, Black workers experienced a reduction in their unemployment rate of 2.8%—from 29.6% to 26.8%. Hispanic workers saw their rate drop by 1%, from 28.5% to 27.5%. Conversely, unemployment for White workers only fell by half a percentage point, settling at 22.7%.

Across the three-month average, the TRU rates for these groups positioned Black individuals at 28.2%, Hispanic workers at 27.7%, and White workers at 23.1%. These statistics illustrate significant disparities in job market experiences based on racial identity.

From a gender perspective, men saw their TRU decrease by 1.2% to 19.3%, while women's rates dropped by only 0.5%, landing at 29.8%. Over the recent months, the TRU averages disclosed a troubling gap, with 30.1% of women and only 20% of men considered functionally unemployed, marking a 10.1 percentage point difference compared to 8.7% a year prior.

Sustainable Economic Improvement

As Gene Ludwig stated, “While short-term progress is encouraging, the larger test lies in whether this can turn into enduring economic stability for households.” Many low- and middle-income families still perceive their economic security as precarious, underscoring the need for policies grounded in real-world experiences.

LISEP has published comprehensive data on the TRU, allowing policymakers and the public to grasp the economic circumstances affecting all Americans more easily. These insights are crucial for forming strategies that cater to the needs of the labor force, especially those who remain left behind in the current recovery trajectory.

Conclusion

In summary, while January 2026 showcased a decline in functional unemployment rates—a positive stride—much work remains to be done. The widening gender gap and ongoing disparities among racial demographics highlight the complexities facing the U.S. job market today.

The real test will be the evolution of these numbers in the upcoming months and whether they suggest a sustainable trend towards improved economic conditions for all segments of American society. As we follow these vital statistics, it becomes increasingly clear that proactive measures are necessary to ensure lasting change and equity within our labor market. Only time will reveal whether the improvements seen are the beginning of a more stable future for all workers.