Nearly one in four Americans face functional unemployment. Women and Black workers are hit hardest as gender and racial gaps widen, new report finds.
The latest report from the Ludwig Institute for Shared Economic Prosperity (LISEP) shows the “true rate of unemployment” (TRU) – a broader measure of functional unemployment – rose to 24.7% in February, up from 23.9% the previous month.
By contrast, the official US unemployment rate increased only slightly, from 4.3% to 4.4%, underlining a widening gap between traditional labour market indicators and the financial reality facing millions of workers.
WHAT IS ‘FUNCTIONAL UNEMPLOYMENT’?
Functional unemployment – also known as the “true rate of unemployment”– measures how many people are struggling in the labour market, not just those officially out of work. It includes:
- people without jobs
- those who want full-time work but can only find part-time roles
- workers earning poverty-level wages
Unlike the official unemployment rate, this measure captures the reality that having a job does not always mean earning enough to live on. At 24.7%, it suggests nearly one in four Americans are either underemployed or unable to secure stable, adequately paid work.
“February’s increase in functional unemployment follows a sharp drop in January, suggesting recent volatility rather than a clear, sustained improvement in labour market conditions,” said LISEP chair Gene Ludwig.
SHARP RISE IN UNEMPLOYED WOMEN
The report highlights a significant and growing gender divide in functional unemployment across the US. Functional unemployment among women rose to 30.6% in February, while the rate for men fell to 18.9%, widening the gender gap to more than 10 percentage points.
This gap has steadily increased over the past year, reflecting deeper structural challenges in the workplace. Experts point to a combination of caregiving pressures, limited workplace support and unequal access to higher-paying roles.
Research shows that fewer than one in three women feel supported at work, pointing to a persistent gap between corporate policies and everyday experience
These barriers contribute directly to higher levels of underemployment, with women more likely to move into part-time work, accept lower wages or leave the workforce altogether.
BLACK WORKERS FACE HIGHEST RISE IN UNEMPLOYMENT
Racial disparities in the US labour market also widened, with Black workers experiencing the sharpest increase in functional unemployment. The TRU for Black workers rose to 28.8%, up 1.9 percentage points in a single month. Hispanic workers reached 28.1%, while White workers saw a smaller increase to 22.9%.
Over a longer period, the trend for Black workers has worsened. Their three-month average stands at 28.4%, higher than a year ago and rising steadily since early 2025.
This reflects broader structural inequalities in employment. Black workers, particularly Black women, were disproportionately affected by federal government layoffs last year, highlighting how economic shifts can have uneven and lasting impacts.
IMPACT ON WOMEN & MINORITY WORKERS
So why are women and minority workers being pushed into underemployment? Economists say the rise in functional unemployment is being driven by three key factors: caregiving pressures, workplace inequality and structural bias.
Caregiving responsibilities remain a major driver. Nearly half a million women exited the US workforce in 2025 as those pressures intensified, as reported. At the same time, many workplaces have been slow to adapt. Limited flexibility, unclear promotion pathways and lack of day-to-day support continue to affect women’s career progression and earnings.
Additionally, women of colour tend to be hardest hit by the motherhood pay penalty, as reported. For minority workers, these challenges are often compounded by underrepresentation and fewer opportunities for advancement, increasing the risk of being pushed into lower-paid or less stable roles.
PRODUCTIVITY & TALENT RISKS
The rise in functional unemployment among women and Black workers also presents a growing risk for businesses and the wider economy. Inclusive organisations consistently outperform their peers, with higher productivity, stronger retention and better employee wellbeing.
Research shows productivity can be up to 68% higher in inclusive workplaces, while employees stay nearly four years longer on average. What makes the latest data particularly significant is that it signals not just a social imbalance, but a growing economic risk. As more women and Black workers are pushed out of stable employment or into underpaid roles, companies risk losing experienced talent at scale.
When organisations fail to retain diverse employees, the impact is immediate – from reduced productivity and weaker decision-making to declining innovation and higher hiring costs There are also signs of shifting workforce expectations. Employees are increasingly willing to leave organisations that fail to deliver meaningful progress on diversity, raising the risk of a broader talent drain.
VOLATILE LABOUR MARKET
Despite February’s increase, the overall trend suggests a labour market that remains volatile rather than consistently deteriorating. The three-month average TRU stands at 24.6%, slightly higher than early 2025 but below the peaks seen later in the year.
“The February one-month increase suggests a return to more typical levels following January’s decline, while the three-month trend indicates that although functional unemployment rose over the course of 2025, it has shown some improvement since the end of the year,” Ludwig said.
“At the same time, these figures may not yet fully reflect recent economic disruptions stemming from geopolitical developments, which could point to increased uncertainty ahead.”
GROWING GAP BETWEEN EMPLOYMENT & FINANCIAL SECURITY
The report highlights a deeper issue within the US economy: the growing disconnect between employment and financial security. While official unemployment remains relatively low, millions of Americans are either unable to find full-time work or are employed in jobs that do not provide a living wage.
For women and Black workers in particular, that gap is widening, raising concerns about long-term inequality, economic resilience and the future of the US workforce.
RETENTION STRATEGIES: GUIDANCE FOR EMPLOYERS
Here are five key takeaways for employers to ensure they retain a diverse talent pool in a volatile labour market:
1. Measure what matters — not just hiring numbers
Headline employment figures can hide deeper inequalities. Employers need to track pay, progression and retention across gender and ethnicity to identify where gaps are widening and take targeted action.
2. Address the workplace support gap
Fewer than one in three women feel supported at work, as reported. Improving management quality, mentorship access and promotion transparency is essential to retaining talent.
3. Build flexibility into core business strategy
Nearly half a million women left the US workforce in 2025 due to caregiving pressures, as reported. Flexible working, childcare support and returner programmes are critical for long-term workforce stability.
4. Recognise inclusion as a driver of performance
Inclusive companies outperform on productivity, retention and innovation. Embedding inclusion into business strategy strengthens competitiveness.
5. Turn commitments into measurable accountability
As workforce expectations shift, employees are demanding evidence of real progress – not just statements. That means setting clear diversity targets, publishing outcomes and holding leadership accountable. Without this, organisations risk losing talent, weakening trust and falling behind competitors building more inclusive, resilient workforces.
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