The Red Devils have won just nine of their 24 league fixtures this season and fell a staggering 33 points adrift of leaders Liverpool after losing at home to Burnley on Wednesday.
Solskjaer is fighting to save his job at Old Trafford but Merson says a number of Manchester United players are not pulling their weight.
And the Arsenal legend also slammed Red Devils executive vice-chairman Ed Woodward, who has been the subject of much criticism from fans in recent months.
Merson told Starsport: ‘How can Ed Woodward keep getting away with it at Manchester United?
‘I keep hearing that their squad cost £100m more than Liverpool’s. How is that possible! It’s unbelievable.
‘I watch United sometimes and it’s sad to see. I feel uncomfortable watching them. This is not Manchester United.
‘So many players are not good enough. Fred has got better but let’s face it, he couldn’t get any worse. Anthony Martial doesn’t seem to realise who he’s playing for.
‘I’m not sure Victor Lindelof and Harry Maguire are good enough to play in a back four.
‘They suit a three better. And Aaron Wan-Bissaka has hit a massive brick wall. Burnley were targeting him.
‘Daniel James needs to come out of the team for a breather because his confidence looks shot, and as for Jesse Lingard – where have the goals gone?
‘People say United miss Scott McTominay when he doesn’t play. But how many top clubs are lining up to try and sign him? It’s sad how far United have dropped.
‘Never mind the top two. Look how far behind Leicester they are! This is Manchester United. They shouldn’t be playing for fourth place.’
Manchester United face League One side Tranmere Rovers in the FA Cup on Sunday.