NY Fed: Labor's Share of US Income Hits Post-War Low, But the Cause Is Familiar

The share of US economic output paid out as wages and salaries has fallen to its lowest point in the post-war era, sitting 1.6 percentage points below where it stood before the pandemic. That metric — the labor share — matters because it tracks whether pay is keeping up with productivity and prices. When it drops, workers are capturing less of what the economy produces. After holding steady near 63 percent for decades, it began a long slide in the early 2000s, took a sharp hit during the 2008 financial crisis, stabilized in the 2010s, and then declined again after COVID.

New York Fed researchers set out to determine whether the recent drop is something new or just more of the same. Their answer is the latter. The post-COVID trajectory tracks the cyclical pattern seen in past recessions: the labor share spiked at the pandemic’s onset, dipped during recovery, and flattened — behavior that actually resembles pre-2000 downturns more than the steeper, non-rebounding declines of the dotcom and financial-crisis eras. On past form, it would take a longer expansion for wages to catch back up.

The researchers also tested whether pandemic-era shifts between industries — output moving toward capital-heavy sectors with lower labor shares — drove the decline. Using a shift-share decomposition, they found reallocation contributed essentially nothing. The drop came almost entirely from changes within industries, the same force behind the previous two recessions. The takeaway: this is a continuation of long-running trends, not a structural break, and little suggests it will play out differently than before.