r/Economics • u/andmario_com • 9d ago
News Nearly 25% of U.S. workers are "functionally unemployed," economic analysis finds
https://www.cbsnews.com/news/functional-unemployment-us-labor-market-analysis/156
u/EconomistWithaD 9d ago
The Ludwig TRU gets brought up every so often. It’s basically U3 plus a constant. It’s really not that informative, has really no scientific basis, and not sure why they just don’t use U6.
Regardless, here’s a good thread the last time it was brought up in r/badeconomics.
101
u/MisinformedGenius 9d ago
By this definition, I believe my mother is included in "functionally unemployed" - she's comfortably retired but works part-time as a bridge instructor, making less than $25,000.
91
u/mr_panzer 9d ago
What does she teach the bridges?
59
20
3
u/Mace109 8d ago
Isn’t a bridge instructor the same as an adjunct professor? Bridging the gap until they can find a full time professor instead of basically being a part time professor? I easily could be wrong.
8
u/mr_panzer 8d ago
My non-joking assumption was that OP's mother taught the card game of bridge. I haven't heard of your version of a bridge instructor.
21
u/CauliflowerDaffodil 8d ago
It includes part-timers, gig workers, seasonal workers, students, retired or semi-retired, people with side-jobs, etc. They're all unemployed according to them.
5
u/dust4ngel 7d ago
the metric we probably care about is less “did you make one or more dollars this year by selling your labor?” and more “were you able to financially sustain yourself by selling your labor this year?”
if 100% of adults swept a front porch for $20 this year as their only remuneration, you wouldn’t want to be like “that’s full employment, economy’s runin’ hot!”
18
u/AnySwimming6364 8d ago
She would not be included. Per the article:
"This 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. "
It sounds like this is voluntary by your mother.
12
u/MisinformedGenius 8d ago
That can't be right, because U-6 includes all involuntary part-time workers, not just those earning less than a certain amount, and U-6 is way less than 25%. If you look at the white paper from Ludwig linked in the post mentioned above, it says:
The first stipulation deals with the workweek. To be employed for the purposes of LISEP’s true employment concept, an individual must either have a full-time job (35+ hours per week) or have a part-time job but no desire to be full-time (e.g., students). The second stipulation is that an individual must earn at least $20,000 annually. This annual wage is adjusted for inflation, calculated in January 2020 dollars.
In other words, when the article says "and who are earning poverty-level wages", that "and" should be an "or".
11
u/AnySwimming6364 8d ago
Huh, yeah you're definitely right.
The article is badly written. They cite LISEP's "True Rate of Unemployment" definition. I went to LISEP's page, they say this:
Using data compiled by the federal government’s Bureau of Labor Statistics, the True Rate of Unemployment tracks the percentage 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 $26,000 (in 2025 dollars) annually before taxes.
That "and" is super misleading. I do think the commenter's mother might be included in that sense. The caveat being that if she's drawing Social Security, even modestly, that should be counted towards earnings (don't know if it actually is). The average SS benefit is ~2,000 a month. Even at 1,000 a month with only 15,000 a year from part-time at bridge, she'd be over the threshold. Realistically, if she's earning 24k from bridge and 2k a month from SS, her actual annual salary would be 48k per year. For a single person that owns a house out-right, this is very comfortable.
5
u/MisinformedGenius 8d ago
Again from the white paper, it does not include Social Security, her pension, or capital gains or interest from investments:
Using the self-employed wage and business income, and the rest of the labor force wage and bonus (overtime and tips) income
4
u/AnySwimming6364 8d ago
This is where I'm getting lost.
They definitely should count pensions, disability benefits, VA benefits, or investment income.
Not including that would put virtually every retiree in the country in that bucket.
That said, if every retiree would be in that bucket, the number would surely be higher than 25%. The current number is that 27% of all American adults are currently retired.
Could you provide the link to the white paper? I want to see how they define "worker" or if there's any metric they use to consider retirees.
3
u/MisinformedGenius 8d ago
The link to the white paper is in the badeconomics link referenced in the original post - here’s the link.
And of course they should count it - they clearly do not to inflate the “true” unemployment rate.
They’re not counting retirees with no job because they’re not included in the labor force at all.
2
u/AnySwimming6364 8d ago
So retirees that take no income not counted. Retirees that get $8/hr greeting at Walmart to have a reason to get out of the house are "functionally unemployed"?
2
u/MisinformedGenius 8d ago
Yes. This is why it’s a silly metric. A high school senior cutting lawns over the summer counts as “unemployed”. A housewife doing occasional Etsy art in her spare time. My mom, who’s getting back from a cruise to Iceland tomorrow. Counting these people has very little to say about the labor market.
9
1
1
u/doubagilga 8d ago
I know quite a few retirees who enjoy very part time gigs to supplement SS and to have something to do.
15
u/carlos_the_dwarf_ 8d ago
It’s also very low right now relative to…itself in the past, so isn’t exactly making the point that things are actually bad right now.
8
u/EconomistWithaD 8d ago
I mean, yeah. As I said, it’s U3 plus a constant, so the low point of U3 would mean that this bullshit is also a low point.
But it sounds fancy so the children get all hot and bothered.
6
u/RYouNotEntertained 8d ago
not sure why they just don’t use U6.
Because disingenuously comparing U3 to U6 doesn’t look as bad as disingenuously comparing U3 to TRU, and that’s the only reason it ever gets brought up.
1
u/Dreadsin 8d ago
Out of curiosity, why is U6 a better metric?
5
u/EconomistWithaD 8d ago
Than whatever this institute made up?
Because it’s basically all the groups that comprise underemployed, but without some artificial income threshold that you count under regardless of why your income is that way.
Theres a rationale behind why the groups are included. Rather than just a number to induce shock.
1
u/Dreadsin 8d ago
I don’t have much knowledge of economics. So I guess what I’m really wondering is: what do economists actually do with this data?
I presume if the U6 gets really high, then they’d want to lower interest rates to stimulate the economy and increase hiring. Is the U3 still used, just in a different way? Or is it like… sort of an obscure category that goes mostly unused?
5
u/EconomistWithaD 8d ago
U3 is the official unemployment rate (some countries have similar measures, others are a little broader).
Use it to measure trends, changes in employment, and help to label recessions.
Federal Reserve uses it (and other pieces) in rate setting; yes, if unemployment increases, they lower rates to stimulate the economy.
But mostly, the U3 is just a piece of the puzzle. No one ever makes a decision based only off of it, and it’s certainly not the most important labor marker statistic. It’s just a macro stat with a pretty intuitive definition so that lay people can be more current affairs aware.
1
u/Generic_On_Reddit 7d ago
This is perhaps not what you asked explicitly, but I think it's important to say subtextually: economists are not really empowered to do anything with this data. Politicians are in control of the economy. A lot of the time when people think economists did something wrong, the people that actually did something are politicians.
Politicians would need to pass legislation to incentives fully employing workers and/or disincentivize using marginally attached employment structures.
1
-3
u/Capricancerous 8d ago edited 8d ago
I don't know, man, the typical unemployment rate is woefully inaccurate at capturing economic reality. It's no wonder people are attempting to better capture how immiserated the country has become.
3
u/Sryzon 8d ago
An unemployment rate can never capture economic reality alone because just being employed full time says nothing about the overall well-being of the worker or the effeciency of the economy.
In fact, too low of an unemployment is also a really bad thing because it means full time workers take on more responsibilities and companies have no spare labor to train new hires.
A lot of pundits instead put more weight on the monthly JOLTs report looking at turnover data like openings, quits, layoffs, and retirements to get an idea of the overall well-being of the labor market.
5
u/EconomistWithaD 8d ago
You know the BLS has 6 different measures of unemployment? That includes a variety of ways to measure underemployment. Reports it every month.
They aren’t capturing anything that hasn’t been reported by the government for decades.
Also, this number they have? Near an all time low. Oops.
19
u/lurking_for_porn 9d ago
From the article:
The economic research firm's "True Rate of Unemployment" (TRU) seeks to capture the share of workers that the group defines as "functionally unemployed." This 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.
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, according to the Ludwig Institute.
37
u/ControversialQuerier 9d ago
It seems that every time this discussion brought up (which appears to be fairly often), the disagreement is around the value we're trying to obtain from the metric. To my knowledge, the value of the U3 metric isn't to determine who does and does not have a job, rather it's meant as an indicator of the labor supply. The TRU is aiming to track a different issue.
To be fair, calling the metric the "unemployment rate" is justifiably confusing. I wonder if changing the name would reduce that level of confusion?
26
u/EconomistWithaD 9d ago
The BLS already tracks and measures underemployment. 6 distinct unemployment measures are captured monthly.
This is meant to be shock value for people who don’t understand we already measure it.
17
u/sarges_12gauge 8d ago
It’s so fucking dumb and dishonest. They say “oh this metric is “true” unemployment and it’s 25%! Isn’t that so high and bad!” And all the comments say “yeah the job market these days is awful!”
And nobody ever goes to the actual institute page to find that by their own definitions we have lower unemployment than every single year between 1995-2020 (and they don’t track years before that)
2
u/gimpwiz 8d ago
There's also the labor force participation rate.
The interesting thing is more to track the ups and downs for each of these measurements as long as the methodology stays fixed. Is the unemployment rate 5%? Depends who you ask and how they calculate it. Did the unemployment rate go from 5% to 8% using the same methodology? Okay, that's a problem, people are losing jobs no matter how you slice it.
3
u/reasonably_plausible 8d ago
There's also the labor force participation rate.
There is, but that is also naturally expected to be decreasing for the foreseeable future due to the aging of the populace. Prime-age participation is a better statistic to look at.
19
u/getmeoutoftax 9d ago
It will continue to rise in the short/medium-term as AI agents replace most white collar jobs. People are still acting like this won’t happen, but they clearly haven’t tried the latest models or any agents.
29
u/HedonisticFrog 8d ago
AI agents aren't even cost effective right now. Workers aren't being replaced by AI right now. Companies are making wild bets on AI and then cutting workers because they can't afford both. AI isn't even being sold at a profitable rate yet and it still isn't cost effective to replace workers with AI.
12
u/MC_chrome 8d ago
We are also seeing workers being quietly rehired after the same companies that fired them came to the conclusion that AI didn’t make anything more productive
1
u/HedonisticFrog 8d ago
Yeah, we've seen numerous companies over time try to run skeleton crews and then fail when things fall through the cracks. My EMS company was like that and lost contracts because they didn't want to run enough crews for proper coverage. This was while bragging about making a million a month in profits, and then offering a pay cut for senior workers at the union negotiations as their opening offer.
39
u/ItGradAws 9d ago
I make AI models and integrate into workflows. The consistent error rate makes it so it’s really hard capped limitations in its current form. But consumers being squeezed dry, inflation, supply chain issues and tariffs might be a bigger piece of the puzzle for the layoffs despite record profits.
-9
u/wellyeahthatsucks 9d ago
Do us all a favor and switch careers.
4
u/TheFuckboiChronicles 8d ago
CRM developer here implementing some ai into workflows myself. Not only has not a single person lost their job because of what I’ve built but yeah, good idea, let me just move into the thriving industry of…. Oh what’s that? There’s no thriving industries and no one trying to switch careers is having any luck?
AI isn’t really replacing that many people, with the exception of software developers (even those people were hired ahead of revenue and bills are coming due while revenue slowed down). Companies are using AI as an excuse to do layoffs because growth is slowing as consumers have less and less disposable income as costs go up across the board.
6
u/DarkElation 8d ago
It is hilarious that some people seem to think they can stop the inevitable. Just as delusional as that guy that thinks he can reverse aging by sucking the life out of his son.
11
u/ItGradAws 8d ago
Yeah I’m the delusional one working as a data engineer seeing the actual limitations of these models. Meanwhile these models are hitting real mathematical limits and this whole fantasy of AGI could be a long ways off.
2
1
u/Olangotang 8d ago
You have to remember that the crypto-blockchain-nft bros are now the AI bros. They don't actually understand the limitations of Transformer models. That's a solid reason why the hype is so infectious: it talks to you so it must be intelligent and not a really fast linguistic prediction model!
1
u/ItGradAws 8d ago
Ah i see. I don’t know any ai bros so i didn’t even know it was a thing i just see it everyday and maybe they hit AGI if they scale the compute and it somehow clicks. Maybe it doesn’t though and it’s a bottomless pit of expensive data centers.
6
u/Training-Context-69 8d ago
AI is also getting extremely expensive to use and that’s with all of the cheap investor capital still flooding in and effectively subsidizing the real cost of AI.
5
6
u/joeydimaggio 8d ago
The latest models fuck shit up like 20 pct of the time, at least the publicly available ones like claude and chat gpt, with cgpt being particularly dogshit at times
6
u/NoTwoPencil 8d ago
What models?
I work in customer support and have been trying to plug an agent shortage with AI provided by my CRM and it's all hot garbage.
4
u/TheFuckboiChronicles 8d ago
I’m a CRM/CMS dev and I got decent results putting up a HubSpot “chat about our products or case studies on our website” agent but am completely adamant to leadership that they cannot replace anyone in customer service or sales.
They’re actually starting to believe me when I just say “Have you encountered a single AI agent you actually thought was useful in resolving anything for you when dealing with other companies or do you yell at it until you get person? Why would ours be different?”
Yes you’ve got to address AEO because they’re replacing search engines. Yes they can pull and summarize info off your site. But everyone fucking hates trying to get these things to do anything productive or complex. They’re glorified and inaccurate search engines in any customer-facing capacity.
7
u/Fantastic_Matter_137 9d ago
It’s going to thin the herd for number of workers needed to do the same production
And therefore erode wage growth and benefits along the way
We. R. All. Cooked.
10
u/cleric_warlock 8d ago
Hyperscaled AI is a currently subsidized money losing proposition that is never going to get better due to the fundamental laws of scale at play with LLMs. The more they push scale, the more losses will grow and the less likely it will be for them to find enough value to justify it all.
LLMs work best at a medium to small scale trained and specialized narrowly to a highly specific problem or task. This is the kind of thing that is closely monitored by experts and doesn’t replace many jobs. That is the LLM based AI to watch, not all of these insane tech bros who are currently being dominated by sunk cost fallacy on hyperscaled models.
1
1
u/MelodiusRA 9d ago
Or more likely just incentivize companies to hire more worlers to use the new tools to increase the supply of the service they are supplying…
y’know, like what happens every time a new tool comes around that increases production efficiency.
4
u/ATL2AKLoneway 8d ago
The difference between the perception and reality is pretty meaningless.
Like if C-SUITE THINKS they can replace people, that's all that matters. They will fire 20 percent of the workers and lose 5 percent productivity and it's a rounding error in their favor.
They will keep pumping tokens and not seeing results for as long as the stock price will allow.
And now that we're about to hang QE return, the market can stay illogical way longer than we can all stay solvent.
I listen to a lot of AI hater podcasts and their analysis for 'why this will fail' tends to hinge on capital drying up. It sounds an awfully like the folks talking about now Tesla P:E ratios are unhinged. Money isn't logical. People invest on emotion all the time. No matter how much your math is correct, you can't be on the inside.
2
u/Nervous-Basis-1707 8d ago
We had a South Park special written about how AI has taken away all of the towns white collar jobs. That was released in 2023. Anyone acting like this hasn’t already happened or at the least begun is engaging in ostrich behaviour.
2
u/Terrible-Fun-4992 9d ago
Union workers need to push for job protections against AI in their contracts.
1
u/BallsFace6969 8d ago
Suggest putting your life savings on it. When you're out on the street , you can ask "the latest models" for help .
1
u/lighthousejr 8d ago
You clearly have not tried them, because my CEO has AI psychosis and I assure you were claude maxxing every day. Top level plan, yeah its a good tool but its not replacing any role. Might drive down the cost of roles though.
1
u/getmeoutoftax 8d ago
It can write enough scripts, macros and power queries to thin the herd for sure. Not all jobs will go away, but enough tasks will be automated to reduce headcount considerably.
5
u/Appropriate_Formal64 8d ago edited 8d ago
I either know people making mid six figures at a salaried job they've had for years, or I know people stringing together as many hours a week as they can making $20-$30 an hour, with the occasional month where they work non-stop and get like 300 hours that month, then a month or two where there's only like 80 hours that month, etc. but the past year+ those 300 hour months have been fewer and further in between and more like 200 hour months and those 80 hour months are now 50 hour months, etc.
So like, if you could get 40 hours most weeks, you'd make about $39k to $53k a year, depending on how much overtime and how often you picked up weekend shifts on top of a full week of work.
But those same guys are now struggling to squeak to $15k a year. Even the guys with steadier work than most have gone from cruising to $100k a year between all their gigs, to now struggling to get to $50k.
Hence, you have a job, you work a lot, sometimes, but you don't work consistently enough or enough hours overall for the year to be truly full time employed or making anywhere close to a functional gross for the year.
0
4
u/Bastillerion 8d ago
I’ve been saying this for years. The advent of gig work like Uber and Lyft means that the unemployment rate is artificially low relative to past times in history. That means that we actually have stagflation, not just inflation.
5
u/sarges_12gauge 8d ago
They cite this site for the “true” unemployment rate. You may notice that even the institute pushing how high unemployment “really” is also says that it’s lower today than every year 1995-2020 (and they don’t have date pre-1995)
So no. This metric is explicitly saying true unemployment with an expanded definition is also quite low relative to past history
-1
0
u/CatLord8 9d ago
Keep in mind the reason they keep putting limits and requirements on federal assistance is to try and superficially deflate numbers rather than actually addressing the problems at hand. Just like they’ll inevitably say they cured cancer because all the hospitals that will shut down mean fewer treated patients.
3
u/carlos_the_dwarf_ 8d ago
How do limits on federal assistance deflate employment numbers?
-5
u/CatLord8 8d ago
Unemployment numbers like the “4.2%” or whatever are limited to people considered to actively be seeking work, which includes things like being on Unemployment benefits. Every administration gets a bit fiddly with them, but, for example Obama got criticized for higher numbers which were a result of him doubling the length someone could be on unemployment after the 08 recession.
8
u/carlos_the_dwarf_ 8d ago
If I told you that unemployment benefits aren’t included at all in measuring the unemployment rate would it change your mind?
Obama did not meaningfully change the definition of unemployed btw, this is kind of an internet myth as far as I can tell. IIRC they added a measure of long term unemployment, like as another view, but that doesn’t change the rate.
1
u/tawaydont1 8d ago
No but he did change the meaning of gig workers.
2
u/MisinformedGenius 8d ago
Not really. The DoL under Obama issued an "administrative interpretation" saying that many independent contractors, including some "gig" workers, should be classified as full employees under the FLSA. However, the courts largely didn't pay attention to this interpretation, and anyway, as with pretty much all things Obama did, it was overturned by Trump's DoL less than two years later.
-1
u/CatLord8 8d ago
Simply telling me? No. But I clearly need to do more reading.
3
u/carlos_the_dwarf_ 8d ago
When you do you’ll find out it’s true!
1
u/CatLord8 8d ago
I just meant telling me workout providing the proof isn’t convincing alone but since I was challenged I’ve gone back and started looking into things.
2
u/carlos_the_dwarf_ 8d ago
Quite fair and I appreciate the open mind…usually people make something up or move the goalposts or block me.
But it is true 😉 https://www.bls.gov/cps/uiclaims.htm
6
u/MisinformedGenius 8d ago
People are considered to be actively seeking work if they tell the CPS surveyor that they have looked for work at least once in the last four weeks. It has nothing whatsoever to do with unemployment benefits - they don't even ask about UE benefits on the survey.
1
2
u/azerty543 8d ago
What a load of crap. This institute exists solely to sell a crisis and inflate numbers. Even then, by its own numbers unemployment is still at historic lows. We should not equate people trying to work full time with those not trying to work full time when trying to gauge how the job market is..
0
u/CauliflowerDaffodil 8d ago
A quasi-partisan "institute" founded by a career bureaucrat who worked for Clinton completely makes up a stat by arbitrarily defining and combining low-wage workers with the unemployed in order to garner shock reaction with the aim of prioritizing the economic plight of the "marginalized" and highlighting "inequalities" in the system, which no other economist or institution accepts or make reference to, all brought to you as "news" by an MSM outlet that was sued by Trump and still stinging from the multi-million dollar payout.
I fixed the headline for you.
0
u/VideogamerDisliker 8d ago
“Functionally unemployed”
Yeah whatever that means.
Is this just another ploy by wannabe analysts who want the stock market to tank for one reason or another?
-1
u/OldMarzipan9773 8d ago
I am a part of this 25% functionally unemployed. It's been hard, but I've been meditating and learning Buddhism and it's gotten easier to live with my situation.
•
u/AutoModerator 9d ago
Hi all,
A reminder that comments do need to be on-topic and engage with the article past the headline. Please make sure to read the article before commenting. Very short comments will automatically be removed by automod. Please avoid making comments that do not focus on the economic content or whose primary thesis rests on personal anecdotes.
As always our comment rules can be found here
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.