The labor share of income in the US is at its lowest post-war level

Richard Audoly, Miles Guerin, Srinidhi Narayanan, and Rachel Schuh

The labor share of income in the U.S. is currently at its lowest-ever level in the post-war period. The labor share measures the fraction of economic output paid to workers as wages and salaries. As such, it is a useful benchmark for wage growth: when the labor share falls, it means that productivity, prices, or both are growing faster than wages. After much-studied drops in the 2000s, the labor share fell sharply again after the COVID pandemic. In this post, we compare the dynamics of the labor share post-COVID to earlier periods to understand whether the recent decline represents the continuation of a trend or a new and distinct phenomenon. We find that both the cyclicality of the labor share and the contribution of reallocation to the labor share post-COVID are similar to earlier periods.

The Evolution of the Labor Share

To contextualize the post-COVID decline in the labor share, we first describe its long-run evolution, illustrated in the chart below. For much of the post-war period, the labor share was remarkably stable, hovering around 63 percent through the late 20th century. Starting in the early 2000s, however, it entered a sustained decline, with a particularly sharp drop during the global financial crisis (GFC). The labor share is a core object of interest in the academic and public debate—it measures the share of aggregate income going to workers as opposed to capital—and a large academic literature discusses the long-run forces behind this downward trend, including technological change, the rise of “superstar” firms, and increasing markups.

The Labor Share Has Declined Since the 2000s Source: U.S. Bureau of Labor Statistics.

Note: Shaded regions indicate U.S. recessions.

In this post, we zoom in on the post-COVID decline in the labor share. After stabilizing in the 2010s, the labor share declined again during the post-COVID period, ultimately falling 1.6 percentage points below its pre-pandemic level. The labor share now stands at an all-time low in the post-war period. Given that the labor share declined in the two most recent recessions, how does the post-COVID decline compare to earlier recessionary episodes?

Is the Post-COVID Decline Typical Across U.S. Recessions?

In the next chart, we study the path of the labor share around various recession–expansion periods, tracing its trajectory from the onset of a downturn. We then assess whether the post-COVID decline mimics the dynamics of the labor share across earlier cycles.

The Post-COVID Evolution of the Labor Share Aligns with

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