Labor share, or the portion of the U.S.’s economic output that workers receive through salary and wages, decreased to 53.8% in the third quarter of 2025, its lowest level since the BLS started recording this data in 1947, according to its labor productivity and costs report published last week. In the previous quarter, labor share was at 54.6%. This decade, the labor share average was 55.6%.

That’s despite corporate earnings skyrocketing, with profits for Fortune 500 companies hitting a record $1.87 trillion in 2024. The U.S. GDP grew 4.3% in the third quarter last year, exceeding economists’ predictions. 

That growth has not only come at the expense of how much of the pie of wealth workers are taking home, but also how many Americans are in the workforce, economists warn.

“That decline in the share of labor has got to be either falling earnings or falling numbers of people,” Raymond Robertson, a labor economist at Texas A&M’s Bush School of Government, told Fortune. “The falling share of income is having to do with the shift towards capital.”

Indeed, there are growing signs that as national income balloons, the U.S. workforce is deflating. Unemployment ticked down to 4.4% in December, but still sits above the 4.1% rate from 12 months before. Moreover, employers added just 584,000 jobs in 2025 compared to 2 million added in 2024.

The stark bifurcation of corporate victories and weak labor data raises concerns among economists of jobless growth jeopardizing the U.S. workforce, as well as a K-shaped economy, where the rich get richer while the poor get poorer, becoming more exaggerated.

“Data right now is very mixed,” Robertson said. “But I think it also all consistently points to this idea that things are getting worse for workers and much better for billionaires.”

Making sense of jobless growth

Robertson attributes weakening labor share averages to the rise in automation, which he noted is displacing workers, with productivity—a metric essentially measuring worker output—continuing to rise. Third-quarter GDP data showed nonfarm productivity growth soared to an annualized rate of 4.9%.

“All these things, bit by bit, are replacing people, and they’re concentrating income and their share of capital,” he said.

Goldman Sachs analysts Joseph Briggs and Sarah Dong estimated in a report this week, based on Department of Labor job numbers, that AI automation could displace 25% of all work hours. They predicted that over the course of the AI adoption period, a 15% increase in AI-driven productivity would displace 6% to 7% of jobs, and, at its peak, a 1 million increase in unemployed workers.

The displacement is substantial, the analysts said, but said the impacts of automation will be tempered by a wealth of new jobs created as a result of the technological changes.

Automation is expected to be a boon to corporate profits and GDP, expected to boost GDP by 1.5% by 2035, according to a Wharton brief published in September 2025. Early signs indicate AI is already driving productivity gains, with companies who invested $10 million or more in AI reporting significant productivity gains compared to organizations investing less in the technology, according to EY’s U.S. AI Pulse Survey.

Robertson added that growing unemployment, which he expects to see rise over the next few months, keeps wages down, allowing margins and profits to expand.

To be sure, the recent productivity surge has been an “open question,” Morgan Stanley economists wrote in a note to clients this week, not unanimously attributed to increased adoption of AI or automation. The analysts suggested this increase would be cyclical, or vestigates of pandemic-era habits of companies making more from less.

An Oxford Economists research brief published earlier this month suggested companies are disguising overhiring-related layoffs as a result of AI, but said automation-related workforce reductions have not yet happened en masse. Additionally, while unemployment has been ticking up over the past year, it is still relatively low.

An immigration crackdown backfires on U.S. labor

Mark Regets, senior fellow at National Foundation for American Policy, sees a different reason for a slowing workforce. He told Fortune President Donald Trump’s immigration crackdown has not done what Trump administration officials, such as White House Deputy Chief of Staff Stephen Miller, said it would in increasing the number of U.S.-born workers. Instead, according to Regets, Trump’s immigration policies have not only decimated the foreign-born workforce, but has also created fewer opportunities for domestic-born workers to find jobs.

The most recent BLS household survey reveals a decline of 881,000 foreign-born workers since January 2025, and a decline of 1.3 million workers since a March 2025 peak, consistent with the Congressional Budget Office’s report last year indicating shrinking U.S. population growth as a result of migrants being deported or refusing to come to the U.S. out of fear of hostile polities.

“The data is raising huge red flags that we are losing immigrants of all types that we otherwise would be advancing America’s economy,” Regets said.

The rising U.S. unemployment rate, up from 3.7% in December 2024 is counterevidence to Miller’s argument that harsher immigration policy would grow the U.S. workforce, he added. In fact, fewer immigrant workers may actually make it harder for U.S.-born individuals to find work.

“A company unable to find the workers it needs for some roles could shut down operations rather than continuing,” Regets said.

He noted that skillset diversity in a workplace could boost productivity and justify employing more people. Greater immigration can also increase consumer spending and stimulate businesses, as well as encourage businesses to take advantage of ample labor market availability and seek out their labor instead of offshoring jobs.

Reversing a shrinking labor force

While friendlier immigration policies could help reverse an exodus of foreign-born workers, Robertson said addressing the workplace automation push would be key to growing the U.S. workforce.

“There are trades that are technology-assisted,” he said. “Those are going to be in higher demand, but you really still have to have a significant investment in skills.”

The young generation of workers are already prepared to adapt to a changing labor landscape. Gen Z are flocking to trade schools in hopes of a finding a job as a carpenter or welder not so easily outsourced by AI, and in 2024, enrollment in vocation-based community colleges increased 16%, according to data from the National Student Clearinghouse. 

Companies have taken it upon themselves to provide reskilling opportunities to employees. An Express Employment Professionals-Harris Poll survey from 2024 found that 68% of hiring managers intended to reskill employees at some point during the year, up from 60% in 2021. While the U.S. Department of Labor updated guidelines to encourage states to adapt workplace development systems, Robertson argued the government hasn’t done enough in several decades to imbue the workforce with necessary skillsets for future jobs.

“Democrats and Republicans have not significantly invested in training [or] the retraining or active labor market programs that you need to match workers to jobs,” Robertson said. “That’s the obvious solution.”

Without changes, economists see the pattern of an employment slowdown continuing, but with greater concern about the ability for the U.S. economy to sustain growth.

“We need job growth to have a growing economy, and I think we need job growth to pay our debts,” Regets said. “I don’t know how you have job growth with a shrinking labor force.”

But a Silicon Valley startup is challenging the assumption that human judgment is off limits to AI.

Mercor, a San Francisco-based AI firm, is hiring people from a vast list of professional career backgrounds to improve its AI, training the model to adopt core skills in a more human-like manner. In other words, they are building a business to prove executives like Jamie Dimon and  Satya Nadella wrong—and to hasten the replacement of people with AI in the workforce, closing the last mile of human employment.

The company’s CEO Brendan Foody and co-founders Adarsh Hiremath and Surya Midha were recently minted the youngest self-made billionaires after the company was valued at $10 billion last November. That funding has given the 22-year-olds the resources needed to build out their ambitious AI venture.

Mercor’s mission is to bridge the gap between machine learning and human nuance. “Everyone’s been focused on what models can do,” Foody told Fortune in November. “But the real opportunity is teaching them what only humans know—judgment, nuance, and taste.”

The shift toward high-skilled gig work is a response to a volatile labor market where even professional skills aren’t enough to ensure a worker’s job security. According to the World Economic Forum’s 2025 Future of Jobs Report, employers estimate that 39% of core skills — such as problem-solving and communication — will be disrupted by 2030, with 40% of firms planning to reduce their workforce specifically due to AI automation. As entry-level white-collar roles begin to vanish, the demand for specialized knowledge and “human-in-the-loop” expertise have become critical currency for workers seeking to resist automation.

Simple work, fast money

Mercor’s career page lists dozens of job postings for contract work looking for individuals with subject-area expertise, including investment banking and private equity analysts, linguists, sports journalists, soccer commentators, astronomists and legal experts. 

The job postings offer hourly rates ranging from $10 for bilingual experts to as much as $150 for finance experts. Aside from competitive pay, the job’s perks include fully remote work. Mercor’s website claims an average hourly rate of $86, with about $2 million paid out to experts daily.

To apply, all applicants must do is submit an initial application followed by an AI interview tailored based on area of expertise, which is then reviewed by Mercor staff. Once hired, contractors evaluate how well their AI system completes micro-tasks — such as writing a financial memo or drafting a legal brief — using detailed rubrics to grade the AI’s performance. This allows for the AI to learn how people make decisions.

The company says it hired 30,000 contractors last year, with 80% being US-based, according to a Mercor spokesperson. The work day varies as contractors have no set hours. Some log 10 hours per week, others work 40 or more, with specific projects lasting weeks or months.

The Wall Street Journal recently found some of the humans who are teaching AI how to do the difficult, human-skill-heavy tasks in which they are experts. “I joked with my friends I’m training AI to take my job someday,” Katie Williams, 30, told the Journal. Williams, who has a background in news and social-media marketing, has worked at Mercor for about six months, watching videos and writing out transcripts of what happens in them, and rating the quality of videos generated by prompts.

The quest for nuance

The company’s newly launched AI Productivity Index, or Apex, benchmarks AI models on real-world knowledge in four fields: medicine, management consulting, investment banking and law. The system uses the same rubric and expert-generated tasks that its contractors help to create, grading models on their production ability. 

The index found that even the most advanced models, like GPT-5, failed to meet the “production bar” for autonomous work. GPT-5 achieved a top score of 64.2%, with scores varying for each category and scoring as low as 59.7% in investment banking.

Despite being far from perfect, the company says that AI models performing at 60% or better can reshape the nature of work as professionals work in tandem with the technology. “Perhaps a consultant can more easily complete a competitor analysis if given an initial draft from an AI,” the company wrote. As AI continues to evolve, the most human skill may no longer be doing the work, but possessing the right judgment required to critique it.

Yet, Monday came, and while gold and silver went vertical, equities stayed calm and the dollar barely drifted. To economist Tyler Cowen, the renowned libertarian from George Mason University and author of the influential Marginal Revolution blog, this lack of market panic is the most revealing part of the drama. It isn’t that investors trust the administration’s motives; it’s that they have already accepted the “ugly little truth” that the Federal Reserve’s independence is a relic of a bygone era. 

“What Trump did was terrible,” Cowen said on the technology podcast TBPN, referring to the administration’s erratic, “Captain Queeg” style of institutional pressure. “But to me, the reason markets didn’t react more is because we already wrecked the independence of the Fed. That’s the ugly little truth behind this story. It was already wrecked.”

In Cowen’s telling, the damage was done years ago, through fiscal policy. Budget deals, tax cuts and a chronic deficit have steadily narrowed the Fed’s real freedom to act, regardless of its formal mandate.

“The basic problem is our debt and deficits are so high that over time, we will monetize them to some extent and have higher inflation because we prefer that over higher taxes, no matter what we might say,” Cowen said on technology show TBPN.

That preference, Cowen argues, quietly undermines central bank independence. Even without overt political pressure, a heavily indebted democracy is one that limits its own monetary choices. At some point, inflation becomes the least politically painful way to manage obligations that voters are unwilling to finance through taxes or spending cuts.

A grim echo

This diagnosis is a grim echo of the work of Ray Dalio, the billionaire founder of top hedge fund Bridgewater Associates, who has long warned of the “Big Cycle” debt trap. Dalio’s framework suggests that nations with massive debts eventually run out of good options. They are left with a choice between three politically poisonous options: austerity (massive spending cuts), default (which would be unthinkable for a reserve currency), or inflation (“printing money” in order to devalue the debt). 

Dalio has frequently agreed with Cowen that for the United States, inflation is the only path forward, since it is an invisible tax that a democracy will always prefer over the political suicide of massive tax hikes or the gutting of social programs. Speaking with fellow billionaire, Carlyle co-founder David Rubenstein, Dalio recently said, “My grandchildren, and great grandchildren not yet born, are going to be paying off this debt in devalued dollars.”

Cowen offered a prediction about how what Dalio calls the “ugly deleveraging” will look: the U.S. may require half a decade of 7% inflation to erode the debt’s value relative to the size of the economy.

“It’s highly unpleasant, and a lot of people will be thrown out of work and living standards will be lower,” Cowen said. “But we’ve already spent that money. We can’t default, and that’s what’s facing us over the next 10 to 15 years,” implying that, while default would ordinarily be a country’s way out of this kind of dilemma, America’s status as the richest economy in world history and the home of the world’s reserve currency make that unfeasible.

The irony, Cowen notes, is that America’s unique status allows it to run higher debt than almost any other nation, even the wealthy ones. That privilege may boost living standards today, but it still weakens political discipline tomorrow, allowing leaders to not only “get away with more debt” but also explicitly destabilize the Fed without worrying too much about market backlash. 

Although neither Dalio nor Cowen have taken this argument about the debt into the feud between Powell and Trump, at its heart lies a similar dynamic: how can the U.S. improve living standards for its lower and middle class? Trump has been badgering Powell about interest rate cuts that would bring down mortgage rates and ease housing affordability, but that runs the risk of fueling an even higher inflation wave down the road, or sooner. 

Albert Edwards, an outspoken and eccentric global strategist for Societe Generale, sounded eerily similar to Dalio and Cowen when he spoke to Fortune in November. “We’re going to end up with runaway inflation at some point,” Edwards said, “because, I mean, that’s the end game, right? There’s no appetite to cut back the deficits.”

The god out of the machine

There is, however, a deus ex machina that could change the course of things: the productivity miracle that many economists expect to come, driven by artificial intelligence. If AI could boost U.S. GDP growth by a full percentage point per year, Cowen said, the country might grow its way out of the debt trap without resorting to a decade of high inflation. Yet he is skeptical. 

Roughly half the U.S. economy—government, higher education, much of healthcare, and the nonprofit sector—is structurally sluggish, he argues. AI may save workers enough time in these sectors to “hang out more at the water cooler,” but not enough to dramatically raise output. Meanwhile, innovation might just concentrate at already-productive sectors of the economy. Without a radical efficiency gain in the half of the economy that doesn’t produce “white or black-belt” AI tools, the debt clock will continue to outrun the AI revolution.

The result is a new, more dangerous era for the U.S. dollar.

“I’m not telling you not to worry” about Fed independence, Cowen said. “I’m telling you should have been worried to begin with.”

And yet, as Morgan Stanley noted in early January, something else appears on the calculus along with the latest rumbles about central bank independence: a 4.9% boost to annualized productivity, as suggested by fresh third-quarter GDP data. 

“We believe much of the rise is cyclical,” economists led by Michael Gapen noted, adding “it remains an open question as to what is driving the productivity acceleration.”