Goldman Sachs links falling labor share to markups, automation, weaker bargaining

September 16, 2026 at 09:23 PM2 min

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Goldman Sachs economists estimate that 60% of the 7.5-percentage-point decline in U.S. labor share since the 1990s reflects real shifts toward capital, while 40% stems from measurement distortions. The report attributes the real decline to rising corporate markups, automation, and eroded worker bargaining power. The findings complicate the narrative of a shrinking middle class, suggesting Americans are wealthier but less secure.

Key Facts

Labor's share of nonfarm business output fell to 52.8%–52.9% in Q2 2026, the lowest since 1947, according to Bureau of Labor Statistics data.
Goldman Sachs estimates 40% of the 7.5-point decline since the 1990s reflects measurement distortions, not actual income transfer.
The remaining 60% of the decline is real and driven by rising corporate markups, automation, and weaker worker bargaining power.
The 1986 Tax Reform Act pushed business owners into pass-through structures, shifting income from wages to business profits in official statistics.
Pass-through business owners, not celebrity billionaires, drove most of the growth in top-1% income, aided by the permanent pass-through deduction.

Measurement Distortions

Goldman Sachs economist Abhay Duggirala estimates that roughly 40% of the 7.5-percentage-point decline in labor share reflects accounting quirks rather than actual income shifts. The 1986 Tax Reform Act raised the relative tax burden on C-corporations, prompting many business owners to switch to pass-through structures like S-corporations and partnerships. Income that once appeared as wages is now reported as business profits, inflating capital's share in official statistics without changing underlying economic reality. Economists Eric Zwick and Owen Zidar document how pass-through business owners, not celebrity billionaires, account for most of the growth in top-1% income.

Real Drivers of Decline

Goldman attributes the remaining 60% of the labor share decline, about 4.5 percentage points, to rising corporate markups, automation, and eroded worker bargaining power. Bureau of Labor Statistics data released in early September show labor's share of nonfarm business output at 52.8% to 52.9% in the second quarter of 2026, the lowest since 1947. The report suggests the American middle class is shrinking not because of absolute income loss but because gains have flowed disproportionately to capital owners. Federal data and original surveys indicate Americans are wealthier by historical measures yet struggle to convert that wealth into security and status.