Image Source: Pixabay
 

I’ve read a few takes in the past week or so about the declining “labor share” of GDP. To cut to the chase, here’s a link to that exact graph: 
 

In case you are confused as to what this means, the labor share is defined as the total amount of compensation of employees and proprietors, divided by the value of the output of businesses. A lower labor share means that more of the revenue earned by businesses is going to other items; those items may be things like capital improvements, or more to the point, they may be paid out as profits to shareholders. 

What the above graph shows is that the labor share was gradually declining by roughly 2%-5% from the 1960s until China was admitted to full regular trading status with the US in 1999. Thereafter, it immediately plummeted by another 7.5%-10% in the 2000’s as high (and even average) paying manufacturing jobs were vacuumed overseas, primarily to China. After the end of the Great Recession, it stabilized during the 2010’s expansion at about 87.5% of its share in the 1960s. But following COVID, it declined another 2% — and finally, in 2025, it declined 1%, so that at the end of Q3, labor only received about 83% of the benefits of productivity that it did in 1960. 

An even more descriptive way to show this is in the graph linked below, with norms the nominal values of GDP, corporate profits, and the aggregate payrolls of all nonsupervisory workers to 100 as of 1964, when the lattermost series started (note: shown in log scale so that each relative increment shows equally):
 

While there were some fluctuations, corporate profits and aggregate payrolls stayed in a reasonably stable relationship until the 1990s, when the tech boom, together with a weak labor market, skewed it towards profits. Even then, by 2000, the two series had converged again. Thereafter, profits have consistently blown out to the upside compared with nonsupervisory labor compensation. As of Q3 2025, corporate profits are almost double their level relative to labor compensation compared with what they were in 2000. Over time, this amounts to $Trillions(!) that have gone into the stock portfolios of the wealthiest sectors rather than average American households.

It’s no wonder, then, that the other day I saw a graph (sorry, don’t recall the link) showing that the richest Americans, relative to all other Americans, now own multiples of wealth even compared against the most concentrated years of the Gilded Age.

It isn’t just in political terms that the US has largely turned into a Banana Republic; in economic terms, it already is.

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