The Hidden Crisis of Functional Unemployment in the U.S.: A Wake-Up Call for Higher Education and Policy Leaders

 A recent article by Hugh Cameron in Newsweek brings urgent attention to a labor market crisis that conventional statistics obscure: millions of Americans are “functionally unemployed.” While the U.S. Bureau of Labor Statistics reports a headline unemployment rate of 4.2 percent, the Ludwig Institute for Shared Economic Prosperity (LISEP) paints a far bleaker picture. 

According to LISEP, 24.3 percent of working-age Americans are either unemployed, underemployed, or trapped in poverty-wage jobs.

True Rate of Unemployment Tells a Different Story

This alternative measurement, known as the True Rate of Unemployment (TRU), includes people who are officially jobless, those seeking full-time work but only finding part-time jobs, and those earning less than a livable income—defined here as $25,000 annually before taxes. Based on that definition, more than 66 million Americans fall under the category of functionally unemployed. These are not edge cases or statistical outliers; they represent a quarter of the working population, living with economic insecurity and eroded opportunities.

The findings challenge the conventional wisdom promoted by policymakers and education leaders, particularly the long-standing belief that higher education is a guaranteed pathway to upward mobility. In reality, the American credential system continues to churn out degrees while failing to deliver economic stability to millions of graduates. Students are told that education is the answer, yet the outcome for many is low-wage or precarious work, often coupled with lifelong debt. The disconnect between academic credentials and actual job quality has become impossible to ignore.

LISEP’s data also reveals significant disparities along racial and gender lines. While 23.6 percent of White Americans are functionally unemployed, that number rises to 26.7 percent for Black Americans and 27.3 percent for Hispanic Americans. The divide is even more striking along gender lines: nearly 30 percent of women fall into this category, compared to 19.3 percent of men. These disparities reflect deep systemic inequities that persist across labor markets and educational access.

Gene Ludwig, chair of LISEP, warned that the stagnation of living-wage employment is pushing working families to the brink. Wages are not keeping pace with inflation, and the jobs being created often don’t pay enough to lift people out of poverty. This is the unspoken backdrop to much of the current political discourse around jobs and education: a structurally flawed economy that leaves millions with few viable options, regardless of their education level or work ethic.

Critics of the TRU metric, including labor economist David Card, argue that the Bureau of Labor Statistics already publishes supplemental indicators that capture underemployment and low wages. But LISEP’s integrated approach offers a broader, more accessible view of economic well-being—one that challenges overly simplistic narratives about a “strong” labor market. Whether or not policymakers embrace the TRU as a primary indicator, the conditions it reveals are real and worsening for many.

Uncomfortable Truths

This data forces higher education to confront uncomfortable truths. If degrees are no longer reliable gateways to decent jobs, what is the purpose of mass credentialing? Why do we continue to promote the college-to-career pipeline when the pipeline increasingly empties into dead-end or unstable work? These are not abstract questions. They strike at the heart of what higher education claims to offer in exchange for rising tuition, student loan debt, and years of sacrifice.

The United States faces a reckoning. LISEP’s report may not change the way official statistics are presented, but it exposes the growing distance between public optimism and private hardship. The challenge now is to ensure that educational institutions, labor advocates, and policymakers move beyond slogans and begin addressing the structural rot beneath the surface of the labor market. That means rethinking the function of education, redefining economic success, and rebuilding an economy where work—and learning—actually pays off.