SouthernWorldwide.com – A significant economic indicator, the labor share of income, has fallen to its lowest point in the United States since World War II, offering a potential explanation for widespread American pessimism about the economy.
This metric, known as the “labor share of income,” quantifies the proportion of the nation’s economic output that is distributed to workers as wages and salaries. Conversely, it represents the portion that goes to investors and corporations through profits, dividends, and other forms of capital income.
A declining labor share signifies a shift where a greater portion of economic gains benefits shareholders and business owners, rather than the workforce. Recent research from the Federal Reserve Bank of New York indicates that as of early 2026, American workers received 54.1% of national income.
This figure is a stark contrast to the over 65% share recorded nearly 80 years prior, shortly after the government began tracking this data post-World War II. Even as recently as early 2020, workers’ share stood at 57.7%, highlighting a continued erosion of their economic standing since the onset of the pandemic.
This economic trend aligns with public sentiment. A recent survey by the Federal Reserve Bank of New York revealed that approximately 48% of Americans reported their financial situation was worse in May compared to the previous year, the highest percentage since January 2023.
Furthermore, a May CBS News poll indicated that three-quarters of Americans feel their incomes are not keeping pace with inflation. Only about 29% of respondents expressed a positive view of the economy’s condition.
Economists attribute the shrinking share of national income for American workers to several persistent issues. These include the decline in union membership and changes in tax laws that have channeled more economic gains towards CEOs, investors, and high-income individuals, as reported by CBS News.
Over decades, these contributing factors have led many low- and middle-income workers to fall behind economically. This has fostered a sense of financial insecurity, even as the overall economy has demonstrated growth and resilience following various crises.
“You’ve got a lot of people who seem to work for firms that, in the aggregate, seem to be doing really well,” stated Josh Bivens, chief economist at the Economic Policy Institute, a nonpartisan think tank. “They’re very profitable, and yet [workers’] wages aren’t growing particularly fast relative to how fast the firms are growing.”
He further elaborated, “A lot of people look up after 10 years of working and just feel like they have not gained as much ground as they want to. More and more stuff just seems to be out of their grasp, because their wages have not kept up.”
Bivens also pointed to the change in U.S. workers’ share of company profits as another way to understand this shift. According to an analysis by the Economic Policy Institute of labor data, workers received 71.3% of corporate income in the first quarter of 2026. This is down from 77.8% at the beginning of 2020.
For context, in 1979, the earliest year for the EPI’s analysis, this share was 79.1%. This data suggests that a diminishing portion of corporate income is being allocated to employee compensation, with more rewards directed towards shareholders and top executives through dividends, stock buybacks, and other capital-related benefits.
Capital gains are typically taxed at a lower rate than ordinary income, which disproportionately benefits shareholders and investors. This disparity further exacerbates the trend of wealth accumulation at the top.
Angela Hanks, chief of policy programs at The Century Foundation, a progressive think tank, believes that the shift in labor income plays a crucial role in the emergence of the “K-shaped economy.” This term describes the diverging economic trajectories where the wealthy experience increasing prosperity, while low- and middle-income earners struggle to maintain their financial standing.
“You see this chart, and you immediately understand why consumer sentiment is so low — you understand why, at 4% unemployment, people are pessimistic about the economy,” Hanks commented. “Even if you have a job, even if you feel like your household is relatively stable, you do feel this underlying precarity at all times.”
Why workers are losing ground
The decline in labor’s share of income and corporate income is the culmination of policy changes enacted over several decades, including the weakening of collective bargaining power, according to Bivens. Union membership has seen a steady decline, falling to 10% of all U.S. workers last year, down from 20% in 1983, as reported by the Center for Economic and Policy Research.
“A good symbol of this is the value of the federal minimum wage — it’s the lowest today in inflation-adjusted terms than it’s been in about 50 years, and that’s just a clear symbol that boosting wages for typical workers has not been a policy priority,” Bivens noted.
The federal minimum wage has remained at $7.25 per hour since its last adjustment in 2009.
Concurrently, the redistribution of income away from workers and towards investors and corporations is creating a self-perpetuating cycle, according to Hanks.
“As labor’s share declines, it becomes harder for labor to exercise its power to demand higher wages, better working conditions, and easier for capital to suppress that demand,” she added.
In essence, as workers secure a smaller portion of the economic output, their leverage in negotiating for better pay and working conditions diminishes. Conversely, corporations and shareholders gain greater power to maintain their advantageous positions.
Reaching a debt end
It is important to acknowledge that other factors are also contributing to Americans’ negative perceptions of the economy. A resurgence in inflation, which reached its highest level in over three years in May, is placing significant pressure on household budgets. A recent Gallup poll found that high gasoline prices have caused financial hardship for two-thirds of households.
Inflation has also outpaced wage growth, resulting in a decline in purchasing power for the typical household. An increasing number of Americans report difficulties in affording healthcare, while credit card delinquencies nationwide have reached their highest point in 15 years. Additionally, the rapid advancement of AI is fueling public anxiety about potential job losses due to automation.
With many families facing increasing financial strain, some are resorting to credit cards and other forms of debt to cover essential daily expenses. This reliance on debt could further contribute to their economic pessimism, Hanks suggested.
“People are increasingly using debt as a way to make ends meet — we have record-high credit card debt, auto debt,” she stated. “People are falling into delinquency and default at concerning rates, and are using these products not for extravagant purchases, but just to get by and make ends meet.”
