Revised BLS data shows that the US non-farm business labor share fell to 52.8% in the second quarter, the lowest since records began in 1947; during the same period, labor productivity increased by 2.2% year-on-year, unit labor costs increased by only 1.4%, and real hourly wages decreased by 0.1%.
The decline in labor share does not necessarily mean an absolute decrease in wages, but rather that the growth rate of workers' wages is slower than that of firm output.
When productivity increases and unit labor costs remain under control, firms can create more output with similar wage costs, allowing more room for the added value to flow into profits and capital returns.
This change did not begin with AI. The US labor share has been declining for decades, driven by factors including globalization and industrial outsourcing, automation substitution, declining bargaining power in labor unions, and rising firm concentration and market power. IMF research suggests that in advanced economies, technological progress is the main factor driving the decline in labor share, and the expansion of global value chains has also weakened the labor share by shifting labor-intensive segments.
