The AI productivity boom will soon make America richer, say the two leaders of the American economy—Treasury Secretary Scott Bessent and Federal Reserve Chairman Kevin Warsh—so much so that it’ll be deflationary; and enough that we can forgo worrying about our $40 trillion debt even.
But analysts are starting to wonder: richer for whom? Workers’ share of U.S. income has already fallen to its lowest level on record, while corporate profit margins keep breaking records quarter by quarter.
According to Gregory Daco, EY-Parthenon chief economist, the productivity gains that explain that divergence largely predate the AI boom. “Productivity growth protects margins, not income,” Daco wrote in a note Thursday.
Economic output grew 1.7% in the second quarter, based on just 0.3% more hours. Compensation rose 2.6%, which, set against a spring and summer of oil-driven inflation, comes out to “flat to slight contraction” in real terms, Daco told Fortune in an interview.
Margins hit a record 14.9% of GDP, while labor’s share fell to 52.8%, the lowest since the government started counting in 1947. Daco said that 50% isn’t a floor. “As long as you continue to see concentrated gains on the capital side, and within a certain number of firms,” labor’s share could keep plummeting, he said.
