America’s productivity boom risks becoming a boon for company profits rather than workers’ incomes, according to Gregory Daco, chief economist at EY-Parthenon.
Daco said the gains from technological advances, including the rapid expansion of artificial intelligence, were likely to be concentrated among large, vertically integrated businesses, creating a more “winner-takes-all” economy.
“Productivity growth protects margins, not income,” Daco said in an interview. He warned that smaller companies continued to face higher borrowing costs, policy uncertainty and persistent pressure on their expenses.
Productivity gains widen divide between workers and companies
US economic output grew at an annualised rate of 1.7% in the second quarter, despite hours worked increasing by only 0.3%. Compensation rose by 2.6%, but oil-driven inflation meant that real pay was broadly flat or contracted slightly.
At the same time, corporate margins reached a record 14.9% of gross domestic product. Labour’s share of national income fell to 52.8%, its lowest level since records began in 1947.
Daco said there was no guarantee that the decline would stop at 50%, arguing that labour’s share could fall further if the benefits of investment continued to accrue mainly to shareholders and the owners of capital.
He said the current productivity gains were not necessarily being generated by AI alone. Automation, tighter cost controls and increased capital spending had also contributed, while the technology sector’s investment surge had so far reinforced the position of the largest firms.
Previous technological revolutions had followed a similar pattern, Daco said. During the railroad expansion of the late 19th century and the dotcom boom of the 1990s, major companies initially captured much of the benefit before cheaper technology spread more widely through the economy.
There was no certainty that AI would follow the same path, he added, particularly as firms continued to invest heavily in data centres and other infrastructure while hiring remained subdued.
The figures have increased scrutiny of the US labour market ahead of the Federal Reserve’s September meeting. Investors were watching the latest jobs report for signs of whether the economy remained strong enough to keep the central bank focused on inflation rather than employment.
Economists surveyed ahead of the release expected non-farm payrolls to rebound by about 65,000 in August, with unemployment holding at 4.1%. July’s report showed payrolls falling by 23,000, while revisions reduced the combined job gains recorded in May and June.
The uneven distribution of productivity gains is also being reflected in consumer credit. Analysts at Pimco said 90-day delinquency rates on subprime car loans had risen sharply in recent years, while defaults among prime borrowers had remained comparatively stable.
That divergence suggested lower-income households could be particularly vulnerable if the economy weakened, either through a serious labour-market shock or a sudden reversal in the technology investment cycle.
