The Employed and the Functionally Unemployed In July as a Indicators of a Softening Labor Market

When we talk about metrics, surveys and studies draw data from the market and create measures that help us understand what is happening in the economy; in this case labor market. Different studies may approach the same question in slightly different ways, such as, “How is the U.S. labor market doing?” They may examine issues such as wealth concentration, the cost of living, labor-force participation, wages, and worker engagement.

The article below looks at some of the hidden weaknesses in the labor market. The traditional unemployment rate tells us how many people are unemployed, but it does not necessarily tell us whether people are earning enough to support themselves or whether they are working enough hours. Someone who is working part-time involuntarily or earning very low wages may technically be employed, but could still be considered “functionally unemployed” because their employment does not provide enough income to meet their needs.

This also becomes a human capital issue. Improving outcomes for these workers may require developing new skills, improving the match between workers and available jobs, and creating opportunities for higher wages. Ultimately, this suggests that policymakers and businesses should look beyond simply maximizing employment and focus on creating opportunities for sustainable, productive, and adequately compensated employment. 

See the study below.

The Hidden Weakness in the U.S. Labor Market

• The official U.S. unemployment rate fell to 4.1% in July, but CBS News reports that this measure may not capture the full condition of the labor market.
• The Ludwig Institute for Shared Economic Prosperity estimates that 24.9% of workers were “functionally unemployed” in July, including unemployed workers, involuntary part-time workers, and people earning poverty-level wages.
• Functional unemployment has increased for four consecutive months, raising concerns that the labor market may be weakening even while the traditional unemployment rate remains relatively low.
• Wages are also struggling to keep pace with inflation. In July, consumer prices increased 3.4% annually while wages increased 3.2%, putting pressure on household purchasing power.
• Economists caution that the 24.9% alternative unemployment measure should not be treated as equivalent to the official unemployment rate, but weaker wage growth and employment trends could constrain consumer spending and broader economic growth.

Cerullo, M. (2026, August 24). Nearly 25% of U.S. workers are “functionally unemployed,” economic analysis finds. CBS News. https://www.cbsnews.com/news/functional-unemployment-us-labor-market-analysis/