On the surface, the US labor market appears robust. Recent data from the Bureau of Labor Statistics shows unemployment at a modest 4.2%, steady wage growth, and the addition of 139,000 jobs in May, Fortune reports.
Yet, beneath these positive headline figures lies a growing segment of Americans categorized as “functionally unemployed.”
A recent report from the Ludwig Institute for Shared Economic Prosperity (LISEP) highlights this often-overlooked group. “Functional unemployment” refers to individuals not captured in traditional unemployment statistics but who nonetheless face significant economic struggles. This includes jobless individuals who have ceased actively looking for work, as well as employed people earning less than $25,000 annually.
Currently, approximately 24.3% of Americans fall into this category, up from about 22.3% two years ago, according to LISEP.
Gene Ludwig, Chair of LISEP, expressed concern over this growing trend.
“We are facing a job market where nearly one-in-four workers are functionally unemployed, and current trends show little sign of improvement,” Ludwig stated in a press release. “The harsh reality is that far too many Americans are still struggling to make ends meet, and absent an influx of dependable, good-paying jobs, the economic opportunity gap will widen.”
The concept of functional unemployment provides additional insight into why some workers express dissatisfaction with current economic conditions. A recent report by employment platform Glassdoor noted employee confidence among entry-level workers has hit record lows. Factors contributing to this include uncertainty around future job prospects due to tariffs and artificial intelligence, alongside the broader economic cooling compared to recent years.
Ludwig emphasized the significance of these underlying trends, calling the rise in functional unemployment “a concerning development” amidst an already uncertain economic outlook.
