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

WASHINGTON, Aug. 20, 2026 /PRNewswire/ — 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.”

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 the TRU one to two weeks following the release of the BLS unemployment report, which occurs on the first Friday of each month. The most recent TRU and supporting data are available on the LISEP website at https://www.lisep.org/tru.

About LISEP
The Ludwig Institute for Shared Economic Prosperity (LISEP) was created in 2019 by 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 a managing partner of 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 also the founder of the Promontory family of companies. He 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 author of the book The Vanishing American Dream, which investigates the economic challenges facing low- and middle-income Americans. His new book, The Mismeasurement of America, was published September 2025 and is now available online or wherever books are sold. On X: @geneludwig.

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SOURCE Ludwig Institute for Shared Economic Prosperity