The current labor market appears strong on the surface, but there are big problems lurking underneath. 

Unemployment is still low at 4.2%, wage growth is steady, and the U.S. added a relatively healthy 139,000 roles in May according to the recent jobs report from the Bureau of Labor Statistics. But a growing number of Americans are “functionally unemployed” according to a new report.  

That’s a term that describes people who are not included in topline unemployment numbers, but are still struggling in the labor market. That includes people who are jobless but have stopped searching for work, as well as people who are employed but earning an annual salary of less than $25,000 a year.  

Around 24.3% of Americans currently fall under that category, according to a report from The Ludwig Institute for Shared Economic Prosperity (LISEP), a nonprofit focused on economic and policy research. That’s up from around 22.3% two years ago. 

“We are facing a job market where nearly one-in-four workers are functionally unemployed, and current trends show little sign of improvement,” said LISEP Chair Gene Ludwig in a press release. “The harsh reality is that far too many Americans are still struggling to make ends meet, and absent an influx of dependable, good-paying jobs, the economic opportunity gap will widen.”

Alternative metrics like “functional unemployment” might help partially explain why so many workers are feeling down about the economy right now. One recent report from employment platform Glassdoor, for example, found that employee confidence amongst entry-level workers has hit an all-time low. Traditional unemployment is still modest, but the labor market has cooled from where it was just a few years ago, and employees are looking warily at how tariffs and AI will affect their future job prospects. 

“Amid an already uncertain economic outlook,” said Ludwig, “the rise in functional unemployment is a concerning development.”

Brit Morse
brit.morse@fortune.com

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