The Unemployment Rate Is Lying to Us: Rethinking Economic Security in the AI Era

As automation rises and old metrics fail, today’s workers face growing volatility. We need a new, shared definition of true economic security—and better tools to measure and protect it.

By Evan Buckingham

The U-3 Illusion

For decades, Americans measured economic well-being by the “unemployment rate,” specifically the U-3 rate, which only includes those actively seeking work. But in a world reshaped by artificial intelligence, gig platforms, and contract labor, that number no longer tells an accurate story.

U-3 overlooks millions of underemployed, discouraged, or invisible workers who are not technically counted but are still struggling. As AI automates tasks once performed by entry-level workers—and as productivity rises without a corresponding increase in wages or benefits—relying on U-3 alone isn’t just outdated. It’s misleading.

AI isn’t just transforming jobs. It’s transforming what counts as work. It’s disrupting traditional paths to stability, especially for early- and mid-career workers navigating churn, uncertainty, and skill mismatches. It also forces a deeper question: What does economic security mean in the 21st century?

A Labor Market That Left Too Many Behind

This pattern of instability is part of a broader shift in how American institutions—both economic and civic—respond to challenges. As I wrote in “Diplomacy Without Suits”, I joined the Peace Corps during a time of financial insecurity not just to serve, but to survive. That service offered both clarity and critique: our economic systems are increasingly unable to absorb shocks or empower new entrants. They expect stability without providing it.

For those who came of age during the 2008 financial crisis—myself included—the instability wasn’t theoretical. It was lived. After graduating, I spent five years bouncing between part-time jobs, temporary contracts, and freelance gigs, bookended by my time in El Salvador with the Peace Corps. Of all those roles, only the Peace Corps offered benefits, and I earned just $10 a day. It underscored the harsh reality: even service work provided more security than much of the traditional job market. Stability was elusive; job postings disappeared overnight, and career ladders felt more like escalators going in reverse. The only reliable path I could find involved learning a new language and leaving the country twice. Joining the Peace Corps wasn’t just about service—it was a strategy for survival.

Today’s Gen Z faces a different landscape, but it’s not disconnected. Millennials experienced a delay in reaching milestones, and Gen Z now faces a collapse of the milestones altogether. Career ladders, affordable housing, and long-term employment are being replaced by burnout, underemployment, and precarity.

In both cases, the throughline is clear: we’re still using systems and metrics that haven’t kept up with reality.

What the Metrics Miss

In recent years, side hustles have become the norm rather than the exception, especially among younger and mid-career workers. The Wall Street Journal recently reported that nearly 40% of Americans now have a side hustle, with Gen Z and millennials accounting for the majority. Far from a sign of thriving innovation, this growth reflects deep economic strain. Many are stitching together multiple income streams, not out of passion, but necessity.

The U-3 rate was born out of the Great Depression and standardized during the postwar era, when full-time, industrial jobs were the norm. It simply doesn’t reflect today’s platform-mediated, AI-augmented workforce.

As CBS News recently reported, if you include those juggling unstable part-time work without benefits or those who have stopped looking altogether, the number of functionally unemployed Americans may exceed 25 million.

While U-3 hovered around 4% in early 2024, the broader U-6 rate—which includes discouraged and involuntary part-time workers—was closer to 7.5%. Even that doesn't account for digital underemployment, burnout, or workers piecing together livelihoods from multiple platforms.

As economist E.J. Antoni of the Mercatus Center noted:

"Unemployment statistics can remain low while an economy still fails to deliver meaningful work or upward mobility."

Further validating this concern, the True Rate of Unemployment (TRU)—a more comprehensive metric developed by the Ludwig Institute for Shared Economic Prosperity—includes those who want full-time work but can’t find it, as well as those who are marginally attached to the labor force. As of late 2023, the TRU was over 22%, painting a far more sobering picture of American labor conditions than U-3 or U-6 alone.

Recent work by researchers at MIT and Boston University adds another dimension to the understanding. Their model tracks "task displacement"—the degree to which AI systems replace or alter core job responsibilities, which could be a complementary signal to traditional labor data. This approach doesn’t just ask who is unemployed; it interrogates how automation is subtly reshaping work beneath the surface.

When Entry-Level Jobs Disappear

The cracks in the labor market are especially stark at the entry point.

According to The Atlantic and NBC News, 2024 graduates faced the most challenging job market in over a decade. White-collar layoffs persist in the tech, finance, and media sectors. Internships are scarce. Entry-level roles often require 2–3 years of experience.

Young workers are caught in what The Atlantic calls the “catch-22 economy”: you need experience to get hired, but can’t gain experience unless you’re hired. Even those who land jobs often end up underemployed, taking roles that don’t require a degree.

"I feel like I’m signing up for debt and uncertainty. Not opportunity." — 2024 graduate to The Atlantic

With many questioning the return on investment (ROI) of college, enrollment is declining. Boot camps, certifications, and freelance paths are growing, less out of ambition than out of desperation.

The paper from MIT and Boston University reinforces this reality, showing that knowledge work is among the most susceptible to automation-driven task reshaping. By quantifying task-level vulnerability across occupations, the researchers highlight how knowledge workers are disproportionately affected, not necessarily unemployed, but underutilized and misaligned with evolving labor demand.

The New Grad Gap

For decades, new college graduates had lower unemployment rates than the general population. That trend has now reversed. In 2024, recent grads faced a higher unemployment rate than the general workforce—an inversion of historical norms. As confirmed by BLS data and The Atlantic, this isn’t just a tough market. It’s a breakdown in how education translates into opportunity.

The Wealth Gap Is Growing—And So Is the Divide

In a moment of shifting generational inheritance, we must ask what kind of economic and civic culture is being passed down. As explored in “From Dream to Disillusionment”, the promises of postwar American prosperity—education, work, ownership—are no longer accessible for many. Without structural reform, this generational handoff will harden inequality rather than heal it.

Meanwhile, historic wealth inequality adds another layer of fragility. According to the Federal Reserve, the top 1% of Americans now hold 31% of national wealth, while the bottom 50% hold just 2.6%.

Between $84 trillion and $124 trillion is expected to transfer from baby boomers to younger generations by 2045—the so-called Great Wealth Transfer. Roughly $46 trillion is projected to go to millennials, and $11 trillion to Gen Z. But here’s the catch: over half of that will be passed within just the top 1.5% of households (WSJ).

Without reforms to access, taxation, and opportunity, this transfer will likely concentrate power rather than democratize it.

Toward a Better Measurement—and a New Social Contract

We also need to consider how AI literacy—or the lack of it—shapes workforce resilience. As highlighted by the AI Literacy Institute, gaps in understanding AI tools and their implications can exacerbate displacement and limit access to emerging roles. Measurement must capture not just technological disruption, but whether workers are being prepared to navigate it.

What we need is a 21st-century labor index—a multidimensional framework that captures not just whether people are working, but whether they are secure, supported, and positioned to grow.

This new index could include:

• Real wage growth

• Job volatility and churn

• Career mobility and skill alignment

• Access to benefits (healthcare, paid leave, retirement)

• Mental health and burnout rates

• Platform labor trends and digital underemployment

• Portable safety nets and caregiving support

• Task displacement metrics based on AI exposure
  

MIT and Boston University track exactly this kind of enhancement with their "Task Displacement" metric, which measures AI’s impact on work structures and job relevance across various sectors. Including such a signal could help policymakers intervene before disruption fully manifests in the employment rate.

If we continue to define economic health by a metric that ignores overworked freelancers, discouraged graduates, and burned-out part-timers, we will continue to misread—and mismanage—the labor market we have.

Evan Buckingham brings a depth of lived experience to his writing, shaped by his time in the Peace Corps in El Salvador, leadership roles in multinational firms, and finance work across North America and the Caribbean. His career spans cultures, sectors, and scales, providing him with a global lens on policy, economics, and service. A lifelong learner and advocate for strong, empathetic leadership, Evan first connected with Jeremi during a course at the University of Texas at Austin, where their shared commitment to thoughtful discourse took root.