Functional Unemployment Up for Fourth Consecutive Month, Says Ludwig Institute

With lower workforce participation rates, signs emerge of weakening labor market

August 20, 2026

For Immediate Release

WASHINGTON, D.C. — The percentage of the American workforce classified as "functionally unemployed” increased for the fourth consecutive month even as the workforce participation rate continued to decline, signaling potential weakness in the labor market, according to the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP’s July True Rate of Unemployment (TRU) — a measure of the “functionally unemployed,” defined as the jobless, involuntarily part-time, and those earning a poverty wage — increased 0.2 percentage points, from 24.7% to 24.9%. Since March, the TRU increased 1.3 percentage points but remains below its December peak of 25.2%. By comparison, the U.S. Bureau of Labor Statistics reported a 0.1 percentage point improvement in the July headline unemployment rate, which fell to 4.1%.

Yet even as the functional unemployment rate rises, the labor force participation rate continues to decline. LISEP’s TRU Out of the Population (TRU OOP) — a measure of the percentage of the working-age population who are not functionally employed, including those who have dropped out of the labor force — increased 0.2 percentage points, from 53.6% to 53.8%, and is up 0.8 percentage points since the start of the year.

“We shouldn’t read too much into a single month, but four months begin to tell a story,” said LISEP Chairman Gene Ludwig. “Functional unemployment is moving higher while workforce participation is moving lower. If this continues, it would suggest the labor market is losing strength despite what we may see in the headline unemployment numbers.”

By demographic, the July TRU for Black workers remained unchanged at 27.3%, while the rate for Hispanic workers fell for the second consecutive month, down 1.5 percentage points to 26.7%. Functional unemployment for White workers increased 0.6 percentage points, from 23.2% to 23.8%.

The TRU for men decreased for the second consecutive month, down 0.9 percentage points, to 19.5%, while the rate for women increased, up 1.6 percentage points to 31% — the highest level since March 2021. As a result, the TRU gender gap widened from 9 to 11.5 percentage points, with the three-month moving average increasing from 8.9 to 9.5 percentage points.

“In a strong labor market, good jobs and rising wages should bring more people into the workforce, not fewer,” Ludwig said. “We need to pay attention when that starts moving in the other direction. It could be a sign that people aren’t finding the opportunities they want or need, which matters for the broader economy.”

Functional Unemployment Up for Fourth Consecutive Month, Says Ludwig Institute

With lower workforce participation rates, signs emerge of weakening labor market

‍Jim Gardner

August 20, 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.

Press Contact:

‍Jim Gardner

press@lisep.org

(573) 680-1822

Additional Resources:

TRU White Paper

TRU & TWE Source Data

TRU & TWE Methodology

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.