Between 2000 and the second quarter of 2015, the share of income generated by corporations that went to workers’ wages (instead of going to capital incomes like profits) declined from 82.3 percent to 75.5 percent, as the figure shows. This 6.8 percentage-point decline in labor’s share of corporate income might not seem like a lot, but if labor’s share had not fallen this much, employees in the corporate sector would have $535 billion more in their paychecks today. If this amount was spread over the entire labor force (not just corporate sector employees) this would translate into a $3,770 raise for each worker.
As Lawrence Mishel and I discuss in our recent paper, the largest wedge driving the growing gap between economy-wide productivity and typical workers’ pay is rising inequality. Part of this increase in inequality is the shift in national income from labor compensation to capital incomes. Since 2000, this decline in labor’s share of income has become a significant contributor to the inequality wedge. The figure shows labor’s share of corporate sector income. Because all income in the corporate sector is either classified as labor compensation or capital incomes (profits plus net interest), this makes it a sensible first place to look for this labor-to-capital shift.