The percentage of the American workforce considered "functionally unemployed" dropped in January, down from a four-year high in December—but still remains higher than a year ago, according to a report from the Ludwig Institute for Shared Economic Prosperity (LISEP).

LISEP's December True Rate of Unemployment (TRU) report—a measure of the functionally unemployed, defined as the jobless, those seeking but unable to find full-time employment, and those earning poverty-level wages—decreased 1.4 percentage points, from 25.2% to 23.8%. All demographics saw improvements in their respective TRU. The Bureau of Labor Statistics (BLS) reported a 0.1 percentage point improvement in the official unemployment rate for the month, from 4.4% to 4.3%.

The January TRU, while an improvement over the December rate of 25.2%—the highest level since June 2021—remains 0.3 percentage points higher than January 2025. Over the past three months, the TRU has averaged 24.6% compared to 23.9% a year ago.

"Improvements in living-wage job availability are always welcome," said LISEP Chairman Gene Ludwig. "However, we're careful not to over-interpret short-term fluctuations. The key question is whether this represents the start of a sustained shift or a temporary bounce within a still-challenging environment."

The TRU improved for all major demographics, most notably for Black workers, with a decrease of 2.8 percentage points, from 29.6% to 26.8%. Similarly, the rate for Hispanic workers dropped a full percentage point, from 28.5% to 27.5%, while the rate for White workers declined a half percentage point, to 22.7%. Over the past three months, the TRU for Black, Hispanic, and White workers has averaged 28.2%, 27.7%, and 23.1%, respectively.

By gender, the TRU for men decreased 1.2 percentage points, to 19.3%, while the rate for women dropped 0.5 percentage points, to 29.8%. Over the past three months, the TRU for women has averaged 30.1% compared to 20% for men—a 10.1 percentage point gender gap, compared to 8.7 percentage points a year ago.

"Short-term progress is certainly encouraging," Ludwig said. "The real test is whether it becomes sustained improvement in economic stability for households. For many low- and middle-income Americans, economic security still feels fragile, which is why policy grounded in lived experience remains essential to turning positive movement into lasting gains."