Labor Share of National Income
Compensation of employees as percentage of gross domestic income
“Workers' share of the economic pie fell after 1971 as capital owners benefited from monetary expansion.”
Labor's share was relatively stable at ~64% from 1947 through 2000, then fell sharply to ~57% after 2000. The timing points to the 'China shock,' automation, and corporate concentration — not the 1971 gold standard change.
Perspectives
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Globalization, technology, and market power reshaped income distribution
The labor share decline is a post-2000 phenomenon driven by trade competition, automation, and corporate concentration.
This is one of the most important economic trends of the 21st century, but its timing exonerates monetary policy. The causes are structural: industries that can offshore or automate have seen their labor shares fall, while 'superstar firms' with high profits and few workers have pulled the aggregate down.
Causal Factors
Globalization (especially post-2001)
30%China's WTO accession in 2001 accelerated offshoring of manufacturing. The labor share decline maps almost perfectly to the China shock timeline.
Automation & AI
25%Capital-intensive production (robots, software, AI) substitutes for labor, allowing output to grow without proportional wage increases.
Corporate market concentration
20%Industry consolidation created 'superstar firms' (tech, pharma) with high profits and relatively few employees, pulling the average labor share down.
Declining worker bargaining power
15%Weaker unions, right-to-work laws, and labor market deregulation reduced workers' ability to claim a share of productivity gains.
Rising depreciation costs
10%As the economy shifted to capital-intensive tech, depreciation of equipment and IP grew, mechanically reducing the measured labor share.
Data Source
Key Events
Nixon Shock
Gold standard ends — but labor share was stable for 30 more years
China joins WTO
Globalization accelerates, labor share begins steep decline
Financial crisis
Corporate profits recover faster than wages after the recession
COVID
Brief spike as government transfers boosted labor income