The AI Boom’s Missing Ingredient: Workers’ Share of Income

The American economy is poised to undergo significant changes driven by the potential of artificial intelligence to boost productivity and wealth. Treasury Secretary Scott Bessent and Federal Reserve Chairman Kevin Warsh have already begun praising this new era, predicting that the AI boom will be so deflationary it could wipe away the country’s $40 trillion debt.

However, a closer examination reveals a more nuanced picture. Analysts are questioning whether the benefits of this technological revolution will trickle down to workers, whose share of income has plummeted to its lowest level on record.

Labor’s share of national income fell to 52.8% in the second quarter, a historic low dating back to 1947. Meanwhile, corporate profit margins have reached a new high of 14.9% of GDP. This divergence is not coincidental; it is a trend that predates AI, driven by decades of automation, cost discipline, and capital spending.

Gregory Daco, chief economist at EY-Parthenon, has been warning about this issue for some time. He notes that productivity growth protects profit margins but often leaves workers behind. “You tend to have greater concentration and more of a winner-takes-all type of environment when you have these technological advances,” he says.

Each new technological revolution – from the railroad boom to the dot-com era – has initially concentrated gains in large, vertically integrated firms, leaving smaller ones to struggle with persistent cost pressures. This time, however, the stakes are higher. The AI boom is uniquely capital-intensive, with data centers expected to reach $31 trillion by 2050.

Companies are spending hundreds of billions on equipment that should eventually allow the economy to produce more with less. However, much of this investment is imported – and not just from China or Europe but also from within the United States itself. The net contribution to GDP from these imports is zero.

The paradox is jarring: while capital spending booms, productivity improves, corporate margins soar, and conditions are “loose,” hiring is weak, housing struggles under tight rates, and workers’ share of income continues to shrink. This has raised tough questions for policymakers: should they let the AI boom unfold as it is or take action?

Growth is not the same as broadly distributed income; if every dollar of output accrues to data center owners or shareholders, then the fiscal math gets complicated. The economy may be getting richer while the tax base and political constituency that policymakers usually associate with a boom grow much more slowly.

We’re told to trust in the AI revolution’s potential to lift all boats. However, where is the evidence? We’ve seen this before: the dot-com era promised widespread prosperity but left behind struggling small businesses and workers priced out of the housing market.

The investment itself carries costs and risks – hundreds of billions competing for capital in an economy where borrowing is getting more expensive. Higher long-term rates suppress homebuilding and make mortgages expensive, as demonstrated by a recent Wall Street Journal article.

Policymakers must confront the possibility that AI might not deliver on its promise to workers. “I don’t think there’s a floor,” Daco said – and it’s time for us to listen.