‘Functional Unemployment’ Drops Slightly, But Labor Market Remains Weak, Says Ludwig Institute

For seventh consecutive month, more than 24% of workforce unable to find full-time jobs paying above poverty-level wages

September 17, 2025

For Immediate Release

WASHINGTON, D.C. — Despite a slight improvement in overall functional unemployment in August, the U.S. labor market continues to show signs of weakness, according to the latest report from the Ludwig Institute for Shared Economic Prosperity (LISEP). Most notably, the functional unemployment rate remains over 24% for the seventh consecutive month, with the rate for prime-age workers jumping more than half a percentage point in August.

LISEP’s August True Rate of Unemployment (TRU) report—a measure of the functionally unemployed, defined as the jobless plus those seeking, but unable to find, full-time employment and those in poverty-wage jobs—fell 0.3 percentage points, from 25% to 24.7%, in contrast with the Bureau of Labor Statistics (BLS) official rate, which increased 0.1 percentage points to 4.3%. Over the past three months, the TRU has averaged 24.7%, compared to 24.2% during the first quarter of 2025.

The TRU for prime-age workers (25-54) increased 0.6 percentage point, to 18.5%. While certain key demographic groups saw improved rates in August, longer-term trends reveal weakening employment opportunities paying above poverty-level wages.

“While any short-term improvement in functional unemployment is welcome and might encourage optimism, longer-term trends point to a weakening labor market and growing challenges for low- and middle-income Americans,” said LISEP Chair Gene Ludwig. “Our analysis of the TRU data over a three-month horizon shows rates consistently trending higher than in recent months, and for certain demographic groups, higher than in years.”

Among demographic groups, the August TRU for Hispanic workers fell 1.5 percentage points, to 27.9%, while the TRU for Black workers decreased by 1.3 percentage points, to 27.8%. Despite this monthly decline, the three-month average TRU for Black workers from June to August of this year, at 28.4%, is the highest since 2021 and higher than the 26.8% average from the first three months of 2025. This trend is also reflected in BLS data, which reported a 7.5% unemployment rate for Black workers in August, compared to a 6% rate in May.

The TRU for White workers increased 0.5 percentage points in August, from 22.8% to 23.3%. The TRU for men improved by 1.4 percentage points, falling to 19.5%, while the rate for women increased 0.7 percentage points to 30.4%. Consequently, the three-month TRU gender gap widened to 9.9 percentage points in August.

“This isn't just about month-to-month changes; the elevated functional unemployment among low- and middle-income individuals reflects a long-term, systemic challenge,” Ludwig said. “For decades, robust economic opportunities have often bypassed these workers, and our current TRU data continues to highlight this persistent struggle.”

‍

Data Revision Notice:

LISEP revised all seasonally-adjusted TRU data from 2023 on to reflect the release of the March 2025 Annual Social and Economic Supplement (ASEC) microdata. LISEP uses ASEC data to calculate the TRU among self-employed workers. Incorporating the new ASEC data results in changes to the monthly TRU from July 2023 on (before seasonal adjustment). For 2025, the revisions resulted in a 0.2 percentage point increase in the TRU (not seasonally adjusted) and a 0.2-0.3 percentage point increase in the TRU for all workers in the labor force (seasonally adjusted, rounded to the nearest tenth). View the updated data here.

‘Functional Unemployment’ Drops Slightly, But Labor Market Remains Weak, Says Ludwig Institute

For seventh consecutive month, more than 24% of workforce unable to find full-time jobs paying above poverty-level wages

‍Jim Gardner

September 17, 2025

For Immediate Release

Additional Resources

Historically, systemic barriers have disproportionately hampered Black farmers’ ability to retain land ownership.

Despite this tragic history, there is still time and economic incentive to set some of the inequities right.

In 2021, working mothers with children under 18 earned just 61.7 cents for every dollar a father made. Much wider than the overall gender wage gap, this difference highlights both the motherhood penalty and the fatherhood premium.

Female-dominated, low-paying, part-time occupations are overrepresented among informal workers who also have a formal job.

We need to create an economic environment where companies can hire these workers as employees and pay them a living wage. There are steps policymakers can take to change the gig economy dynamic.

Dependency on tips over base pay is growing because of actions taken by gig companies to institute tipping.

Even for those lucky enough to be making what amounts in many states to the poverty wage of $15 per hour, many will get nothing but a week’s notice before being out on the street.

One study shows that consistent involvement in extracurricular activities increased a child’s likelihood of attending college by a whopping 400% compared to not being involved at all.

Studies have found that both men and women are paid less if they work in “nurturant” occupations.

Since 2015, the correlation between LISEP’s functional employment to population ratio and the inflation rate was more than four times as strong as the BLS’s employment to population ratio, which is depicted in the graph below.

The employment to population ratio settles the discrepancy between what we see around us and what the data says.

The NBER paper defines employment using the traditional BLS U-3 rate. However, the often-used U-3 number fails to capture the quality of jobs.

Among states with stricter COVID-19 policies, reducing unemployment benefits had little to no effect. The average effect of increased employment seems to have occurred only in those states with looser COVID protocols.

‍

Data Revision Notice:

Press Contact:

‍Jim Gardner

press@lisep.org

(573) 680-1822

Additional Resources:

No items found.

About TRU

LISEP issued the white paper Measuring Better: Development of “True Rate of Unemployment” Data as the Basis for Social and Economic Policy upon announcing the new statistical measure in October 2020. The paper and methodology can be viewed here. LISEP issues TRU one to two weeks following the release of the BLS unemployment report, which occurs on the first Friday of each month. The TRU rate and supporting data are available on the LISEP website at lisep.org/tru.

About LISEP

The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by Gene Ludwig and his wife, Dr. Carol Ludwig. The mission of LISEP is to improve the economic well-being of middle- and lower-income Americans through research and education. LISEP’s original economic research includes new indicators for unemployment, earnings, and cost of living. These metrics aim to provide policymakers and the public with a more transparent view of the economic situation of all Americans, particularly low- and middle-income households, compared with misleading headline statistics. On X: @LISEP_org.

About Gene Ludwig

In addition to his role as LISEP chair, Gene Ludwig is the founder of the Promontory family of companies and Canapi LLC, a financial technology venture fund. He is the founder and CEO of Ludwig Advisors, which counsels financial firms on critical matters. Ludwig is the former vice chairman and senior control officer of Bankers Trust New York Corp. and served as the U.S. Comptroller of the Currency from 1993 to 1998. He is also the author of the book The Vanishing American Dream, which investigates the economic challenges facing low- and middle-income Americans. His forthcoming book, The Mismeasurement of America, will be published in September 2025 and is available for pre-order wherever books are sold. On X: @geneludwig

Please Note:

The Ludwig Institute for Shared Economic Prosperity continuously revises and updates its data. As a result, data presented in this release may no longer reflect the latest estimates. Find the most current data at lisep.org.