A low unemployment rate typically signals that an economy is generally healthy. The unemployment rate in the U.S. remained near a 50-year-low in April 2025 at 4.2% — plus, American employers added 177,000 jobs in April despite the uncertainty of Trump’s tariffs and trade wars.
This all sounds good, right? Not so fast.
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The “true” rate of unemployment in April, according to the Ludwig Institute for Shared Economic Prosperity (LISEP), was 24.3%, up 0.03% from the previous month. LISEP’s True Rate of Unemployment (TRU) includes the unemployed, as well as workers who are employed but still struggling.
“We are facing a job market where nearly one-in-four workers are functionally unemployed, and current trends show little sign of improvement,” said LISEP Chair Gene Ludwig in a statement published on PR Newswire.
“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.”
That could help explain why, despite the supposedly healthy employment rate, consumer confidence in the American economy has been plunging.
What is ‘functional unemployment’?
So, why is there a 20-point difference between the LISEP and Bureau of Labor Statistics (BLS) unemployment numbers? The BLS collects a massive amount of data on unemployment, but some of that data is excluded from the official unemployment rate.
For example, BLS found that 5.7 million people who aren’t employed do, in fact, want a job — but they weren’t counted as unemployed because “they were not actively looking for work during the four weeks preceding the survey or were unavailable to take a job,” according to BLS.
LISEP uses data compiled by BLS, but instead of simply measuring unemployment, LISEP measures what it calls the “functionally unemployed.” This is defined as the portion of the U.S. labor force that “does not have a full-time job (35+ hours a week) but wants one, has no job, or does not earn a living wage, conservatively pegged at $25,000 annually before taxes.”
Its metrics capture not only unemployed workers, but also those stuck in poverty-wage jobs and those working part-time but can’t get full-time work. LISEP’s measurements aim to include these functionally unemployed Americans to provide a more complete picture of unemployment across the country, including the nuances that other economic indicators miss.
This, in turn, can help “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,” according to LISEP.
“Amid an already uncertain economic outlook, the rise in functional unemployment is a concerning development,” Ludwig said. “This uncertainty comes at a price, and unfortunately, the low- and middle-income wage earners ultimately end up paying the bill.”
Ludwig says the public would be “well served by a commitment from economic policymakers to adopt a stable course of action” based on real-world metrics.
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The gap between official and ‘real’ numbers
LISEP uses two important differentiators in its metrics. First, to be considered fully employed, an individual must have a part-time job (with no desire to work full time, such as students) or have a full-time job working at least 35 hours per week.
Second, the individual must earn at least $20,000 annually, adjusted for inflation and calculated in January 2020 dollars, as per the Department of Health and Human Services’ U.S. poverty guidelines.
While “not technically false,” LISEP says the rate reported by the BLS is “deceiving,” considering the number of Americans in the workforce who are “employed on poverty-like wages” or “on a reduced workweek that they do not want.”
“For example, it [BLS’ unemployment rate] counts you as employed if you’ve worked as little as one hour over the prior two weeks,” Ludwig told CBS MoneyWatch. “So you can be homeless and in a tent community and have worked one hour and be counted, irrespective of how poorly-paid that hour may be.”
TRU also paints a bleak picture for certain demographics, with Hispanic and Black workers faring worse than white workers and women faring worse than men. For example, 27% of Black workers and about 28% of Hispanic workers are functionally unemployed compared to 23% of white workers.
Every month since 1995, black Americans have had a “meaningfully higher” TRU than caucasian Americans, according to LISEP.
The TRU numbers suggest the U.S. economy is much weaker than the BLS unemployment rate would have you believe — particularly for lower- and middle-income Americans — and that there’s a need for policy solutions that reflect this more nuanced reality.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
