The Hidden Opportunities in Labor Market Data: Why 'Functional Unemployment' Signals a Shift in Investment Strategy

The U.S. labor market appears stable on the surface: the Bureau of Labor Statistics (BLS) reported an unemployment rate of 4.2% in May 2025. But beneath this headline number lies a stark reality: nearly one in four Americans (24.3%) face functional unemployment, a metric tracked by the Ludwig Institute for Shared Economic Prosperity (LISEP). This “True Rate of Unemployment” (TRU) accounts for underemployed workers (those seeking full-time jobs but stuck in part-time roles) and low-wage earners (below $25,000 annually), painting a far bleaker picture of economic hardship.

For investors, this discrepancy is a goldmine. The TRU reveals a demand surge for solutions to systemic labor market gaps—workforce training, gig economy platforms, and mental health support—that traditional metrics ignore. Companies addressing these pain points are poised to thrive, even as policymakers grapple with outdated data.

The TRU Discrepancy: A Catalyst for New Investment Themes

The TRU's 24.3% rate in May 2025—up from 24.2% in April—exposes flaws in the BLS's narrow focus on unemployment status. While the BLS counts only those actively seeking jobs, LISEP's broader measure highlights 23 million Americans who are either underemployed or earning poverty wages. This group faces a triple threat: stagnant wages, rising living costs (LISEP's True Living Cost Index rose 9.4% in 2023–2024), and informal economy participation.

Image: A diverse group of workers in a classroom, with one using a tablet to access training modules.

The functional unemployment crisis creates three major investment themes:

1. Workforce Training: Rebuilding the Pipeline for In-Demand Skills

The TRU data shows that 6.3 million Americans lack full-time work due to underqualification or mismatched skills. This is a call to action for companies offering reskilling and upskilling programs.

Why it matters:
- Tech-driven learning platforms like Pluralsight (NOW) and Coursera (EDU) are already capturing demand, but their growth potential is underappreciated.
- Traditional vocational schools are struggling against online competitors, but niche players like CDI Corp (CDI) could pivot toward high-demand fields (e.g., healthcare IT).

Actionable pick: Pluralsight (NOW) has a 2025 revenue growth target of 20%, fueled by corporate partnerships. Its stock trades at 1.8x forward revenue—cheap relative to growth peers.

2. Gig Economy Platforms: Flexibility for the Underemployed

The TRU includes 4.6 million part-time workers seeking full-time roles and 6 million “discouraged workers” outside the labor force. These individuals are prime candidates for gig platforms, which offer flexible income streams.

Why it matters:
- Upwork (UPWK) and Fiverr (FVRR) dominate freelance talent markets but face scalability limits.
- Logistics-focused platforms like Convoy (CNVO) and DoorDash (DASH) benefit as part-time workers seek supplemental income.

Actionable pick: Convoy (CNVO) is expanding into AI-driven logistics, reducing costs for clients and improving gig workers' earnings. Its valuation is reasonable at 15x forward sales.

3. Mental Health Support: The Human Cost of Economic Insecurity

Functional unemployment isn't just about money—it's about mental health. LISEP's TRU report notes a record-low employee confidence rate, driven by job insecurity and stagnant wages. Companies addressing workplace mental health will gain a competitive edge.

Why it matters:
- Telehealth platforms like Amwell (AMHC) and Mindstrong Health (MSHT) are scaling rapidly to meet demand for accessible care.
- Corporate wellness programs (e.g., Lyra Health) are becoming standard in industries with high turnover.

Actionable pick: Amwell (AMHC) is diversifying into employer-sponsored mental health plans, a $30 billion market. Its stock is down 30% YTD, creating a buying opportunity.

The Contrarian Play: ETFs for the TRU Economy

For investors seeking broad exposure, sector ETFs can mitigate stock-specific risks:
- Workforce training: SPLT (Socially Responsible Education ETF) holds Coursera, Pluralsight, and edtech leaders.
- Gig economy: GIGE (Global Gig Economy ETF) includes Upwork, DoorDash, and logistics firms.
- Mental health: HMO (Healthcare Mental Wellness ETF) holds Amwell, Mindstrong, and pharmaceuticals targeting depression/anxiety.

The Risks and the Reward

Critics may argue that these sectors are speculative, but the TRU data is no fad: it's been above 24% for five months straight. With the BLS's metrics lagging behind reality, investors ignoring functional unemployment risk missing out on the next wave of growth.

The takeaway? Allocate capital to companies solving the TRU crisis—they're not just “nice to have” but essential to a workforce in transition.

In a world where 24.3% of workers are underemployed or underpaid, the smart money is on the tools that help them thrive.

Avi Salzman is a pseudonymous investment analyst focusing on macroeconomic trends and undervalued sectors. This article is for informational purposes only and should not be considered financial advice.