The US labor share hit a post-war low. The NY Fed's verdict: nothing new
Workers' cut of national income is at its lowest since WWII, down 1.6 points from before the pandemic. The New York Fed studied whether this time is different and answered its own headline: no.
Labor's share of US income sits at a post-war low, off 1.6 points from pre-COVID after holding flat through the 2010s. The New York Fed asked if the drop signals something new and answered no: it tracks past recessions and comes from within industries, not work shifting between them.
One reader called the title sensationalist and quoted the paper's own no. Another argued the metric is partly a tax-law mirage: doctors and lawyers who once drew a W-2 salary now bill through one-person corporations, so their pay counts as capital, not labor.
The number the headline shouts, and the caveat the paper whispers
The labor share of income is the slice of national output that reaches workers as wages and salaries. In the New York Fed's Liberty Street analysis, that slice is at its lowest-ever post-war level, running about 1.6 percentage points below where it sat before the pandemic. The chart tells the longer story: roughly stable near 63% through the late 1990s, then a sustained slide, with the steepest drops during 2008-2012 and 2020-2024, landing near 57-58% by 2025.
The authors then ask the question the headline dodges: is this decline actually different from before? They test two dimensions. First, the cyclical pattern, whether the post-COVID fall behaves like earlier recession recoveries. Second, whether the drop came from economic activity shifting between industries or from changes inside them. Their answer to "is this time different" is no. The trajectory mirrors past recessions, and a shift-share decomposition shows between-industry reallocation contributed "nothing or very little." The fall is driven almost entirely by changes within industries.
The thread's first move: read the actual conclusion
The 498-comment thread opened with a correction to its own headline. Pasting the paper's closing paragraph in full, a founder pointed out the submitted title oversold the finding:
"The submitted title is a bit sensationalist given the article's conclusion… they provide little evidence that it will evolve differently from past episodes." — jameslk, founder of two dev studios
Several readers redirected attention from COVID to a sharper cliff the chart shows earlier: "most of the decline happened in the 2000s," one wrote, with the post-COVID drop "comparatively small" by contrast. The COVID framing, in other words, may be the least interesting part of the graph.
"Where is the extra money going?" and the tax-law mirage
The most contested claim was that the metric partly measures accounting, not exploitation. An engineer who declined to write a longer comment laid out the mechanism:
"income that was attributed to 'labor' shifted over to LLCs/S corps for more beneficial tax rates. The doctor, lawyer, financial advisor, CPA etc. that in past decades would have had his/her income run through a W2 arrangement shifted to becoming a one-person corporation." — an engineer describing the S-corp shift
Challenged for evidence, a related voice extended it to franchising, linking University of Chicago research on the same effect: a corporate store manager's salary counts as labor income, but the identical role at a franchise counts as capital income. A separate line of skepticism came from a commenter who asked where the money actually goes and argued "most of it is not going to billionaires" but into future investment, only to be met with the obvious return question: who owns the capital doing that investing, and who collects its returns.
One more asterisk cut the other way. A reader with maxed-out karma noted a wrinkle the topline can hide: the actual labor share is higher once you count employer contributions to health insurance premiums, which have outrun inflation for decades. Another top-karma voice replied that the Fed's data already includes those contributions. The disagreement is the point. Behind a single falling line sits an argument about tax code, healthcare accounting, and demographics that the headline number can't settle.
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