Corporate Profits Surge While Labor’s Share Shrinks? The Dual Track of the U.S. Economy in the AI Era

Shift in the beneficiary of productivity gains
Labor share of income declines, warning signs in employment data
Capital accumulation accelerates under investment-led recovery

Concerns are mounting that the gains from U.S. economic growth are concentrating in capital rather than flowing to labor. As automation driven by artificial intelligence (AI) converges with surging corporate profits, returns to capital have risen rapidly, while wage growth and employment-based income have failed to keep pace. A combination of declining labor income share, sharp productivity gains, and expanding capital expenditures—developments that might appear contradictory at first glance—are unfolding simultaneously, intensifying debate over the distribution of economic gains.

A Snapshot of “Labor-Light Growth”

On the 10th, The Wall Street Journal observed that “the biggest money in today’s U.S. economy flows not to labor but to capital,” adding that the spread of AI is further reinforcing this trend. Since the COVID-19 pandemic, corporate profits have surged, and the market valuations attached to those profits have climbed sharply. The WSJ argued that in this process, corporations, shareholders, and a limited group of key talent representing “capital” have emerged as winners, while the vast majority of workers remain constrained by modest income growth.

The divergence between corporate value and employment levels illustrates this shift. In 1985, IBM—then considered the most valuable company in the United States—employed roughly 400,000 people. By contrast, Nvidia, now among the highest-valued firms by market capitalization, commands up to 20 times IBM’s inflation-adjusted value at the time, yet employs only about one-tenth as many workers. High market value no longer necessarily translates into large-scale employment. This pattern has accelerated since the 2020s, and as valuation multiples assigned to corporate earnings have expanded, the amplification of capital’s value has intensified.

The link between asset prices and consumption has also changed. Since 2019, average hourly wages in the United States have risen by only about 3%, while total labor compensation increased by 8%. Over the same period, corporate profits surged 43%. Profit margins among S&P 500 companies reached their highest level since 2009. Doug Peta, strategist at BCA Research, noted that “a 10% rise in stock prices— even after applying the top tax rate—can boost consumption capacity as much as an 18% increase in income,” adding that the widening gap between a strong equity market and subdued consumer sentiment reflects a capital-centric distribution structure.

Expectations surrounding AI adoption suggest this dynamic could become even more entrenched. Dario Amodei, CEO of Anthropic, described AI as “a general-purpose technology that replaces not just specific occupations but human labor more broadly,” predicting that as companies increase AI adoption, labor’s share of corporate revenue will inevitably decline. Combined with the post-pandemic divergence between rising profit margins and slower wage and employment growth, expanding AI investment is intensifying debate over who ultimately captures the gains from growth.

New Job Creation Falls to One-Quarter of Prior Level

A key concept in this debate is the labor share of income—the proportion of national income paid to employees as wages and salaries. In general, compensation paid to workers is classified as labor income, while profits accruing to producers are categorized as operating surplus. The labor share rises when labor-intensive industries dominate or when employee compensation grows faster than capital returns; it declines when capital income expands more rapidly or employment weakens.

According to U.S. Department of Commerce data, the U.S. labor share fell from 58% in 1980 to 51.4% in the third quarter of last year. Over the same period, the share of corporate profits rose from 7% to 11.7%. The portion of manufacturing value added allocated to wages and benefits declined from 66% in 1980 to 45% in the 2000s. Pascual Restrepo, professor at Yale University, estimated that roughly half of the decline in labor’s share since the 1980s stemmed from automation and technological change, adding that recent AI diffusion has further shifted income toward capital by simultaneously enabling workforce reductions and productivity gains.

While output and corporate profits have expanded, labor’s portion has contracted, and employment indicators are flashing warning signals. Last year, the U.S. added only 584,000 new jobs, down from roughly 2 million the year before—about one-quarter of the prior level. The unemployment rate rose to 4.4% in December, up from 4.1% a year earlier. Raymond Robertson of Texas A&M University explained that “a declining labor share implies either lower wages or fewer workers,” and when both occur simultaneously, profit margins can improve without corresponding expansion in employment and wages—an indication of “jobless growth.”

Interpretations of the underlying causes vary. Morgan Stanley economists characterized the recent productivity surge as an “open question,” suggesting that large-scale workforce reductions directly attributable to automation have not yet fully materialized. Others point to immigration policy. Mark Regets, senior researcher at the National Foundation for American Policy (NFAP), argued that stricter immigration enforcement, contrary to claims that it would boost employment among U.S.-born workers, has instead contributed to labor market weakness. NFAP data show that the number of foreign-born workers declined by 881,000 since January of last year.

Policy, Industry, and Finance Converge to Drive Investment

As corporate profits and stock prices rise, capital is being redeployed not only into dividends and share buybacks but also into capital expenditure and strategic industries. The Atlanta Federal Reserve estimated that U.S. GDP grew at an annualized 4.0% in the third quarter of last year. A breakdown of growth components shows that while private consumption moderated, equipment and intellectual property investment contributed more strongly to expansion. This suggests that higher returns to capital are feeding back into increased investment.

Capital expenditures tied to AI, semiconductors, and data center infrastructure have been particularly pronounced. Major U.S. technology firms reportedly doubled AI-related CAPEX last year compared with 2023. As a result, total U.S. fixed investment rose to roughly 30% of GDP, well above the long-term average of 27%. This pattern reflects an investment-led recovery driven by the alignment of policy, industry, and finance, as capital that once flowed overseas returns to advanced domestic industries and infrastructure.

The challenge is that this reinvestment structure may deepen distributional imbalances. Consumption growth among the top 20% of households is more than double that of the bottom 20%, and household equity holdings now amount to roughly 300% of annual disposable income. Rising asset prices therefore support consumption at the top, while high interest rates constrain spending among more heavily indebted households. For an investment-led recovery to prove sustainable, productivity gains must eventually translate into higher employment and wages, alongside capital accumulation.