Texas Border Business
Over the past several decades, workers have been receiving a smaller slice of the economic pie. Recent data indicate that labor’s share of output in the nonfarm business sector fell to 52.8% in the second quarter of 2026, the lowest level since record keeping began in 1947. The implications of this milestone are quite significant, but somewhat nuanced. Let’s briefly explore what the decline does – and does not – mean.
The labor share is the portion of economic output that accrues to workers as compensation, including wages and salaries, benefits, pensions, and employer payments for social insurance. For much of the post-World War II period, it was relatively stable, generally ranging from 60% to 66%. As late as 2001, it was over 64%. Since that time, however, it has entered a period of relatively sustained decline, with substantial drops following the 2001 and 2007-2009 recessions. Since the beginning of 2025, it has also fallen precipitously. To be clear, this drop does not mean that paychecks are shrinking in absolute terms. In fact, hourly compensation rose 3.7% over the past year, although it did not keep pace with inflation.
Corporate profits rose by $384.0 billion in the second quarter, reaching an annual rate of $4.7 trillion. Productivity also spiked. In other words, workers are producing more, but the gains are not reaching paychecks at even close to the same rate as in the past.
It should be noted, however, that a chunk that doesn’t go to workers also doesn’t go to corporations or investors, but rather to taxes and depreciation. The Tax Foundation estimates that nearly 17 cents of every dollar of gross income covers depreciation (the cost of replacing worn-out equipment), and rapid investment in computers, software, and similar assets (which wear out quickly) boosts depreciation. About another 10 cents goes to taxes (including sales and property taxes, tariffs, and corporate income taxes). After these adjustments, the share of net income going to profits, interest, and rents has risen from about 17% in 2000 to 22.6% more recently. Of course, workers still have to pay taxes from their shrinking piece of the pie.
Other factors also matter, such as the fact that some business owners report their pay as profits for tax reasons (although that pattern has been pretty stable over time). Moreover, corporate profits benefit investors, including workers participating through retirement accounts.
The decline in labor share tracks closely with an increase in the use of technology, which is not coincidental. Automation and artificial intelligence could add further downward pressure over time. Ensuring that productivity gains translate into higher living standards for working families will require investments in training, a skilled workforce, and enlightened policies. Stay safe!
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Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of more than 3,000 clients over the past four decades.
