Corporations Are Keeping More of the Economic Pie as Workers’ Share Hits 79-Year Low
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Two government reports came out 24 hours apart last week. The headline numbers miss what they show when read side by side. Friday’s jobs report looked strong. Joblessness fell to 4.1% from 4.2%, household employment rose by roughly 463,000, and the employment-population ratio rose to 59.3%. Thursday’s productivity report was the bigger story. Labor’s share of nonfarm business output fell to 53% in the third quarter, the lowest reading in records going back to 1947.
Labor share measures how much of what businesses produce goes to workers as wages, salaries and benefits. Picture a company with $1 million in output. At a 53% labor share, $530,000 goes to employees. The other $470,000 goes to capital and other costs that aren’t labor. Workers now get a smaller piece of what they produce than at any point in nearly 80 years.
Workers Produced More but Captured Less
Productivity rose 3.6%. Hourly compensation rose 2.9%. Because pay grew more slowly than output per hour, unit labor costs fell 0.7%, meaning businesses spent less on labor for each unit they produced. Output grew at a 3.7% annualized rate while hours worked barely moved.
The extra money shows up in profits. Corporate profits reached about $4.7 trillion at an annual rate in the second quarter, up 20.8% from a year earlier. Paychecks moved the other way. Average hourly earnings, adjusted for inflation, slipped from $11.38 in January to $11.26 in September, measured in constant dollars. Wages and salaries fell to 42% of gross domestic income in 2025, the lowest reading in the past decade.
Why the Gap Is Widening Now
The roots go back to the labor shortage of 2022. Richmond Fed’s Tom Barkin told Bloomberg’s Odd Lots in August that companies short on workers back then put money into automation and new operating models, and they are getting the return now. AI mostly affects hiring. Executives, Barkin said, are deciding to “see if you can’t fill the job using AI first and then we’ll hire later.”
Economist Adam Posen pushed back on the same show, linking slow hiring partly to the reshuffling of jobs after Covid: “You can’t automatically say the lack of hiring is AI.” One quarter is too short to prove a permanent structural shift. Still, the trend points one way: businesses are learning to grow output faster than they add workers.
Who Collects the Gains
When labor’s share shrinks, more of the money goes to shareholders, and shareholders are concentrated at the top. The top 1% of households own 50.9% of corporate equities and mutual fund shares held outside 401(k)-style plans, according to the Federal Reserve. The bottom half owns 0.6%. A record-low labor share moves income toward the top of the wealth ladder.
Watch the Savings Rate Next
The risk for investors is that workers are also customers. Fatter margins hold up only as long as the people buying the products keep spending. Signs of strain may already be showing. The personal savings rate fell to 4.1% in the third quarter, down from 5.3% in the first. That suggests households are dipping into savings to keep spending.
Two signals matter over the next quarter or two. The first is whether unit labor costs keep falling in the revised third-quarter and first fourth-quarter productivity data. The second is whether the savings rate keeps dropping. If both trends continue, profits stay strong for now while consumer demand depends on thinning savings. That mix can carry corporate earnings into 2027, but only while households keep spending what they used to save.
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After two decades of patrolling the dark corners of suburbia as a police officer, Rich Duprey hung up his badge and gun to begin writing full time about stocks and investing. For the past 20 years, he’s been cruising the markets looking for companies to lock up as long-term holdings in a portfolio while writing extensively on the broad sectors of consumer goods, technology, and industrials. Because his experience isn’t from the typical financial analyst track, Rich is able to break down complex topics into understandable and useful action points for the average investor. His writings have appeared on The Motley Fool, InvestorPlace, Yahoo! Finance, Money Morning, and, of course, 24/7 Wall St. He has been featured in both U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, and USA Today.
