The stock market keeps breaking records, but your paycheck doesn't feel like it. In this episode of Diving In, Justin Wolfers explains that disconnect with one number: labor's share of income has fallen to 54.4 cents on the dollar, the lowest share on record. And it’s significantly less than the two-thirds that was common for most of the last century.

Justin fires up the actual data to stress-test the claim — accounting for depreciation and tax-driven accounting tricks. But the decline is real and still stands. Then he sizes what it means for you: a five-point drop in labor's share works out to about $10,000 a year in lost wages for the average worker — while the gains flow overwhelmingly to the very top, where the richest households collect over half of all capital income.

Why is this happening? Giant firms that grow sales faster than payroll, weaker worker bargaining power, and globalization that lets your job move elsewhere. And now AI could either make you more productive and better paid — or automate your job and hand the upside to owners. How we slice that pie is up to us.

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Cited Research:
The Rise of Pass-Throughs and the Decline of the Labor Share: https://zidar.princeton.edu/sites/g/files/toruqf3371/files/syzz2022.pdf
Not a Typical Firm: Capital–Labor Substitution and Firms’ Labor Shares: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/HubmerRestrepo_NotTypicalFirm_Oct2023.pdf
Automation and New Tasks: How Technology Displaces and Reinstates Labor: https://shapingwork.mit.edu/wp-content/uploads/2023/10/acemoglu-restrepo-2019-automation-and-new-tasks-how-technology-displaces-and-reinstates-labor.pdf

One more thing: When I create these videos, I often crunch a few numbers in Stata, with whom I’ve got a paid partnership. Today, I used it to compare labor's share of income with and without depreciation.

You can follow along with me here: https://platypuseconomics.com/stata/labor_share_worksheet.pdf