Labor’s share of U.S. income is often portrayed as falling to a historic low, but a closer look at the national accounts tells a different story. When gross income is broken down correctly, capital accounts for roughly one‑fifth to one‑quarter of total income, and even using net income the capital share stays well below half.
Gross income versus net income
- Gross domestic income (Q2 2026): about $32.2 trillion.
- Compensation of employees: 50.4 cents of every dollar (41.5 cents wages & salaries + 8.9 cents benefits). This is the unambiguous labor component.
- Non‑labor components counted in the BLS series:
- Corporate profits after tax, interest, and rent – ≈ 17 cents per dollar.
- Imputed rent on owner‑occupied housing – ≈ 3.6 cents (a statistical estimate, not cash received).
- Proprietors’ income (owners of partnerships & sole‑proprietorships) – ≈ 6.7 cents (mix of labor and capital returns).
If all “non‑labor” items were attributed to capital, capital would receive ≈ 24 cents per dollar of gross income – far short of the 50 % figure often cited.
What gross income includes that never reaches anyone
- Depreciation: about 17 cents of each dollar. This reflects the cost of replacing equipment and does not appear as cash income.
- Taxes on production and imports (TOPI): 7.0 cents (sales, property, excise, customs duties, net of subsidies).
- Corporate income taxes: 2.8 cents.
These items are subtracted before income reaches households, so treating them as “capital income” inflates the capital share.
Net income and the labor share
After removing depreciation and taxes, private‑sector net income in Q2 2026 is roughly $23.7 trillion. Using this base:
| Component (share of net income) | Approx. share |
|---|---|
| Unambiguous labor income (employee compensation) | 68.3 % |
| Unambiguous capital income (profits, interest, rent) | 22.6 % |
| Proprietors’ income (ambiguous) | ≈ 9 % |
If proprietors’ income is assigned entirely to capital, the capital share rises to 31.7 % of net income—still well below half. Recent research suggests most of proprietors’ income is labor‑like, so the true capital share is likely closer to the lower figure.
Historical perspective
- Late 1940s: labor’s share of net income ≈ 69 %; capital ≈ 13 %.
- 1970s: labor’s share peaked at ≈ 75 %; capital ≈ 15 %.
- Since 2000: capital’s share has risen, reaching 22.6 % (or up to 31.7 % with a full‑capital treatment of proprietors).
- Today: labor’s share has returned to ≈ 68 %, a level seen repeatedly over the post‑war era.
Why the BLS “labor‑share” series looks different
- Imputation for non‑corporate businesses: BLS assumes proprietors “pay themselves” the average employee hourly wage in their sector; the residual is labeled capital income. This allocation has shifted dramatically, making the inferred capital share of proprietors rise from < 20 % in 1990 to ≈ 50 % today.
- Sector exclusions: Government, nonprofit, and farm sectors (about 15 % of the economy) are omitted. Including them would raise the BLS labor‑share estimate.
- Statistical discrepancy: BLS computes the ratio using product‑side output (GDP) versus income‑side measures (GDI); any gap between the two can affect the trend.
- Coverage: The BLS measure covers only the non‑farm business sector (≈ 75 % of the economy), whereas national accounts encompass the full economy.
Bottom line
- Capital’s share of gross U.S. income is 17 %–24 %, not the 50 % suggested by many headlines.
- Using net income, capital’s share ranges from 22.6 % (if proprietors’ income is treated as labor) to 31.7 % (if treated as capital).
- Labor’s share of net income is around 68 %, a historically typical level, not a “record low.”
- The apparent decline in the BLS labor‑share series stems largely from methodological choices—imputed allocations, sector exclusions, and the use of gross rather than net income.
Source article: taxfoundation.org
