‘Functional Unemployment’ Hits Highest Level Since 2021, Says Ludwig Institute

One in four workers now unable to find full-time jobs paying above poverty wages

January 22, 2026

For Immediate Release

WASHINGTON, D.C. — More than a quarter of the workforce is now considered “functionally unemployed,” marking the highest level since June 2021, according to a report from the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP’s December True Rate of Unemployment (TRU) report — a measure of the functionally unemployed, defined as the jobless, those seeking but unable to find full-time employment, and those earning poverty-level wages—increased 0.4 percentage points, from 24.8% to 25.2%. This marks the highest TRU since June 2021, when it reached 25.3%, and stands 1.2 percentage points higher than a year ago. While the Bureau of Labor Statistics (BLS) reported a 0.1 percentage point decrease in the official unemployment rate for December, from 4.5% to 4.4%, the unemployment rate remains at its highest level since October 2021.

“Looking beyond monthly fluctuations, the broader labor market trends warrant close attention,” said LISEP Chair Gene Ludwig. “The share of workers who are functionally unemployed has risen over the past year and returned to post-pandemic highs, pointing to ongoing challenges in access to full-time, living-wage employment.”

By demographic, the TRU for Black workers rose 1.5 percentage points in December, to 29.6%. The average TRU for Black workers in 2025 was 27.8%, up 0.8 percentage points from 2024. The TRU for Hispanic workers also increased by 1.5 percentage points in December, from 27% to 28.5%, while the TRU for White workers fell slightly, from 23.3% to 23.2%. In 2025, average TRU levels increased modestly for both Hispanic and White workers — to 28.2% and 23.2%, respectively—reflecting smaller annual increases of 0.2 percentage points.

By gender, the TRU for men increased 0.3 percentage points in December, to 20.5%, while the rate for women increased 0.2 percentage points, to 30.3%.

“The data point to a labor market that has become increasingly static,” Ludwig said. “Low hiring is making it harder for new entrants to find work, contributing to higher functional unemployment. At the same time, persistently elevated functional unemployment rates for Black and Hispanic workers denote a higher prevalence of low wages and part-time work. While monthly demographic data can be volatile, these trends warrant careful attention as they evolve.”

‘Functional Unemployment’ Hits Highest Level Since 2021, Says Ludwig Institute

One in four workers now unable to find full-time jobs paying above poverty wages

‍Jim Gardner

January 22, 2026

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.

By gender, the TRU for men increased 0.3 percentage points in December, to 20.5%, while the rate for women increased 0.2 percentage points, to 30.3%.

Press Contact:

‍Jim Gardner

press@lisep.org

(573) 680-1822

Additional Resources:

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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 latest book, The Mismeasurement of America, released in September 2025, is now available 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.