This number helps explain why many Americans are down on the economy

The Shrinking Share of Economic Gains

This number helps explain why many – Recent analysis by Federal Reserve economists reveals a troubling trend: the proportion of national income allocated to American workers has reached its lowest point in over seven decades. According to data from the Federal Reserve Bank of New York, as of early 2026, workers received just 54.1% of the country’s total economic output. This marks a stark contrast to the 65% recorded during the post-World War II era, when the government began systematically tracking the metric. Even in early 2020, the figure stood at 57.7%, indicating a steady erosion of workers’ economic share since the onset of the pandemic.

The labor share of income, a key indicator of how economic growth is distributed, measures the portion of a nation’s earnings that goes to employees rather than to corporate profits, dividends, or capital gains. A declining labor share suggests that wealth is increasingly concentrated among business owners, shareholders, and high-income individuals. This shift has left many low- and middle-income workers feeling financially strained, even as the broader economy expands. For example, a recent survey by the Federal Reserve Bank of New York found that 48% of Americans reported their financial situation worsening compared to the previous year, the highest such percentage since January 2023.

Josh Bivens, chief economist at the Economic Policy Institute, emphasized that the decline in labor’s share of income is a long-term phenomenon driven by systemic changes. “Over decades, the balance of economic gains has shifted significantly,” he explained. “While companies and investors have seen substantial returns, workers’ wages have not kept pace with the growth of the economy.” This trend is reflected in corporate profits, where the share of company earnings going to workers dropped from 77.8% in early 2020 to 71.3% in the first quarter of 2026. The EPI’s data also shows that in 1979, the starting point of their analysis, workers received 79.1% of corporate income, a decline of nearly 8 percentage points over 40 years.

“People often assume the economy is thriving if unemployment is low, but the reality is that many workers still feel left behind,” said Angela Hanks, policy programs chief at the Century Foundation. “This imbalance explains the pessimism in consumer sentiment, even when the broader economy appears stable.”

Why Workers Are Losing Ground

The reduction in workers’ economic share is attributed to a combination of structural and policy-related factors. One major contributor is the weakening of union power, which has steadily declined since the 1980s. Union membership in the U.S. dropped to 10% of all workers in 2025, down from 20% in 1983, according to the Center for Economic and Policy Research. This decline has diminished workers’ ability to negotiate fair wages, allowing corporations to retain a larger portion of profits.

Another key factor is the evolution of tax policies that favor capital gains over labor income. While ordinary income is taxed at higher rates, profits from investments are subject to lower tax brackets. This disparity has incentivized companies to allocate more earnings to dividends, stock buybacks, and executive bonuses, rather than increasing employee compensation. As Bivens noted, “Capital gains benefit shareholders and investors, creating a cycle where profits are prioritized over wages.”

Additionally, the stagnation of the federal minimum wage has played a role in widening the gap. When adjusted for inflation, the current minimum wage is at its lowest level since the 1970s, according to Bivens. “This underscores that boosting wages for typical workers hasn’t been a policy focus,” he stated. “It’s a clear signal that the economic system is designed to reward capital over labor.”

Economic Disparities and the K-Shape Trend

The shrinking labor share has contributed to the so-called K-shaped economy, a term used to describe the divergence between the wealthy and the rest of the population. In this model, top earners experience growing prosperity, while low- and middle-income individuals face stagnation or decline. “The K-shaped trend is visible in everyday life,” Hanks observed. “People with jobs and stable households still feel an undercurrent of financial uncertainty because their wages aren’t matching the growth of the economy.”

This phenomenon is further exacerbated by rising inflation, which has outpaced income growth for many Americans. A May CBS News poll found that three-quarters of respondents believed their incomes were not keeping up with the cost of living. Only 29% thought the economy was in good shape, highlighting widespread concerns about economic stability. Even with a 4% unemployment rate, consumer confidence remains low, as people grapple with the reality that their earnings haven’t kept pace with the gains of corporations and investors.

The implications of this trend are far-reaching. As wages stagnate, households face greater financial pressure, particularly in the wake of multiple crises, including the pandemic and subsequent economic shocks. “Workers aren’t seeing the same returns as businesses,” Bivens pointed out. “This creates a sense of inequity, where those at the top reap the rewards of growth, while the majority struggle to maintain their standard of living.”

“Ten years of work shouldn’t mean feeling like you’ve made less progress than you want,” Bivens added. “The system is set up in a way that makes it harder for everyday workers to catch up, even when the economy is expanding.”

Experts warn that without policy interventions, this imbalance will persist. The erosion of union influence, tax reforms favoring capital income, and stagnant minimum wages have collectively weakened workers’ bargaining power. “These changes have been gradual, but their cumulative effect is undeniable,” said Hanks. “The result is a growing divide between economic elites and the working class, which fuels skepticism about the overall health of the economy.”

As the labor share continues to shrink, the question remains: how will this trend impact the future of American households? With wages stagnating and corporate profits rising, the challenge for workers is to adapt to a system where their share of the economic pie is shrinking, even as the economy grows. “The K-shaped economy is a reality that people are beginning to recognize,” Bivens concluded. “It’s not just about the numbers—it’s about the lived experience of financial insecurity for millions.”