U.S. Workers Take Smallest Share of Economic Output Since 1947

American workers took home 52.8% of U.S. economic output in the second quarter of 2026 — the lowest labor share since the Bureau of Labor Statistics began recording the data in 1947, according to the agency's labor productivity and costs report. The figure fell from 53.6% in the previous quarter. This decade's average has run about 55.6%.

The record low comes while corporate America posts historic results. Fortune 500 profits hit a record $2.1 trillion in 2025, and U.S. GDP grew 3.4% in the third quarter last year, beating economists' predictions.

Growth has come at the expense of both workers' share of income and the size of the workforce itself, economists warn. Unemployment ticked up to 4.2% in September, and employers added just 584,000 jobs in 2025 versus 2 million in 2024. The U.S. economy added 29,000 jobs in September — about one-third of economists' projections.

"That decline in the share of labor has got to be either falling earnings or falling numbers of people," Raymond Robertson, a labor economist at Texas A&M's Bush School of Government, told Fortune. "The falling share of income is having to do with the shift towards capital."

What is causing jobless growth?

Robertson points to automation as the main driver displacing workers while productivity keeps rising. Nonfarm productivity grew 1.4% last quarter, BLS data shows, down from 2.2% in the same quarter a year ago.

"All these things, bit by bit, are replacing people, and they're concentrating income and their share of capital," he said.

Goldman Sachs analysts Joseph Briggs and Sarah Dong estimated, using Department of Labor job numbers, that AI automation could displace 25% of all work hours. They predicted a 15% AI-driven productivity increase would displace 6% to 7% of jobs over the adoption period, and at its peak add 1 million unemployed workers — though AI displacement has not shown up meaningfully in economic data yet. The analysts said new jobs created by the technology will temper the impact.

A Wharton brief published in September 2025 projects automation will boost GDP by 1.5% by 2035. McKinsey data shows around 80% of employees report AI makes them faster at specific tasks, but only 37% of companies see that productivity hit operating profits, and AI operating costs still constrain deployment.

Robertson expects unemployment to rise over the next few months, which keeps wages down and lets margins and profits expand. Morgan Stanley economists have called the productivity surge an "open question," arguing it may be cyclical or a vestige of pandemic-era habits of doing more with less. An Oxford Economics brief earlier this year suggested companies are disguising overhiring-related layoffs as AI-driven cuts, and automation-related reductions have not happened en masse.

Why is an immigration crackdown backfiring on U.S. labor?

Mark Regets, senior fellow at the National Foundation for American Policy, blames a different force: President Donald Trump's immigration crackdown. He said the policy has not delivered what administration officials like White House Deputy Chief of Staff Stephen Miller promised — more U.S.-born workers. Instead, it has decimated the foreign-born workforce and created fewer openings for domestic-born workers.

NFAP data shows a 1.1 million to 1.4 million-person reduction in the foreign-born workforce since January 2025, consistent with a Congressional Budget Office report on shrinking U.S. population growth. BLS data shows foreign-born labor participation fell from 66.3% to 66% between September 2025 and September 2026, while native-born participation fell from 61.6% to 60.9%.

"The data is raising huge red flags that we are losing immigrants of all types that we otherwise would be advancing America's economy," Regets said. "A company unable to find the workers it needs for some roles could shut down operations rather than continuing."

How does the U.S. reverse a shrinking labor force?

Robertson said tackling the automation push is key. "There are trades that are technology-assisted," he said. "Those are going to be in higher demand, but you really still have to have a significant investment in skills."

Gen Z is already adapting: enrollment in vocation-based community colleges rose 16% in 2024, per National Student Clearinghouse data, as students chase carpentry and welding jobs AI can't easily outsource. A June CareerTrainer survey found 72% of hiring managers intend to reskill employees, and the Labor Department has updated guidelines urging states to adapt workforce development systems.

Robertson argues Washington has failed for decades: "Democrats and Republicans have not significantly invested in training [or] the retraining or active labor market programs that you need to match workers to jobs. That's the obvious solution."

Without change, economists expect the employment slowdown to continue — and they question whether the U.S. economy can sustain growth on top of it. "We need job growth to have a growing economy, and I think we need job growth to pay our debts," Regets said. "I don't know how you have job growth with a shrinking labor force."

By Amara Osei