Profits rise, paychecks lag, and the gap widens
U.S. workers are receiving the smallest share of the nation’s economic output since records began nearly eight decades ago, a shift that highlights a growing imbalance between capital and labor even as the broader economy expands.
According to new data from the Bureau of Labor Statistics, the labor share of income, which measures the portion of gross domestic product paid out as wages and salaries, declined to 53.8 percent in the third quarter of 2025. That marks the lowest level recorded since the series began in 1947 and represents a steady drop from 54.6 percent in the previous quarter. Over the past decade, labor’s share has averaged closer to 55.6 percent.
The decline comes at a time when economic growth and corporate profitability remain robust. U.S. GDP expanded at a 4.3 percent annualized rate in the third quarter, beating expectations, while profits among Fortune 500 companies reached a record $1.87 trillion in 2024.
Is growth becoming increasingly jobless?
Economists say the falling labor share reflects not only slower wage growth, but also fewer people participating in the workforce.
Raymond Robertson, a labor economist at Texas A&M University’s Bush School of Government, argues the shift signals a structural move toward capital driven growth. As businesses rely more heavily on technology, automation, and productivity gains, income increasingly accrues to owners of capital rather than workers.
Employment trends support that concern. While the unemployment rate edged down to 4.4 percent in December, it remains higher than a year earlier. Employers added roughly 584,000 jobs in 2025, far fewer than the two million jobs created in 2024.
The divergence between rising output and slowing job growth has raised fears of jobless growth, where economic expansion no longer translates into broad based employment gains.
Automation accelerates productivity and displaces labor
A major factor behind the declining labor share is rapid productivity growth. Nonfarm productivity surged at an annualized rate of 4.9 percent in the third quarter, allowing companies to produce more with fewer workers.
Analysts at Goldman Sachs estimate that artificial intelligence could automate roughly a quarter of all work hours over time. Their research suggests that a 15 percent boost in AI driven productivity could displace six to seven percent of jobs, potentially pushing unemployment higher during peak adoption periods.
Corporate investment data suggests those gains are already emerging. Companies committing significant capital to AI systems report faster output growth and higher margins, reinforcing the incentive to substitute technology for labor.
While some economists argue that productivity spikes may be cyclical or influenced by post pandemic cost controls, the long term trajectory points toward sustained automation reshaping the workforce.
Immigration policy adds another strain
Labor supply pressures are also intensifying due to declining immigration. Mark Regets, a senior fellow at the National Foundation for American Policy, points to recent immigration enforcement under President Donald Trump as a key contributor to workforce contraction.
BLS household survey data shows the foreign born workforce has shrunk by more than one million people since early 2025. That decline aligns with Congressional Budget Office projections showing slower population growth as migration slows.
Contrary to claims that reduced immigration would boost job opportunities for U.S. born workers, economists warn the opposite may be occurring. Labor shortages can force companies to scale back or shut down operations, reducing overall employment opportunities.
Can training and skills reverse the trend?
Some economists believe targeted investments in skills and training could help counterbalance automation. Technology assisted trades and vocational roles remain difficult to outsource, and enrollment in trade focused education programs rose sharply in 2024.
Employers are also stepping in. Surveys show a growing number of companies plan to reskill existing workers, though experts argue public investment in workforce development has lagged for decades.
Without policy changes or renewed focus on labor force growth, economists warn the U.S. risks sustaining economic expansion without enough workers to support it.
