Nearly 1 in 4 US Workers Now 'Functionally Unemployed,' Analysis Finds

So here's a stat that sounds alarming but needs some unpacking: a new analysis says nearly 1 in 4 American workers are "functionally unemployed" — even though the official unemployment rate is a healthy-looking 4.1%. How can both be true? It comes down to who's counting and what counts as a "real" job.

The number comes from the Ludwig Institute for Shared Economic Prosperity (LISEP), a nonprofit research group run by Gene Ludwig, a former U.S. Comptroller of the Currency. Ludwig argues the official unemployment rate, which reflects the percentage of people 16 and older who don't have a job and who are looking for work, is an imprecise metric that fails to offer a full picture of the health of the job sector. His fix is something called the "True Rate of Unemployment" (TRU), which includes not only people who are unemployed and looking for a job, but also those who are involuntarily working part-time and who are earning poverty-level wages, or less than $26,000 annually before taxes.

According to that measure, functional unemployment across the U.S. has climbed four straight months and stood at 24.9% as of July, although that's down from 25.2% in December. Ludwig says this trend is a warning sign: "We shouldn't read too much into a single month, but four months begin to tell a story," Ludwig said. "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." His point is that in a genuinely strong economy, more people should be jumping into the workforce chasing good jobs and rising pay — not the opposite.

Why does this matter to you? Because the headline unemployment rate can undersell how tough things actually are for a lot of workers. As Ludwig has explained in past reporting on this same measure, the official rate can count someone as "employed" even if they've barely worked at all or are stuck in a job that doesn't pay enough to get by — which masks a lot of financial stress that doesn't show up in the topline number.

But it's not a slam dunk. Other economists have cautioned against putting too much weight on alternative measures like TRU, with EY-Parthenon chief economist Gregory Daco telling CBS News, "An unemployment rate that would be in the 20% range does not line up with anything we see in the U.S. economy." There's also real evidence the broader job market is softening for reasons beyond LISEP's measure: employers unexpectedly cut 23,000 jobs in July, and even though unemployment is low by historical benchmarks, many Americans continue to grapple with the impact of high inflation, with the Consumer Price Index rising at an annual pace of 3.4% in July, while wages rose at an annual rate of 3.2%. Daco pointed to muted wage growth as a drag on the economy too, since it limits how much people can spend, and he noted employers are focused on "controlling costs, and wanting to make sure they have the right talent and the right skills at the right price, and not spend excessively."

Bottom line: the 4.1% unemployment rate isn't fake, but it also isn't the whole story. Whether you buy LISEP's 25% figure exactly, it's a useful reminder that "low unemployment" doesn't automatically mean everyone's doing fine.