- The labor share of income in the U.S. has reached its lowest post-war level, indicating slower wage growth compared to productivity or prices.
- Post-COVID, the labor share declined by 1.6 percentage points, following a trend of drops since the early 2000s, including after the global financial crisis.
- Analysis shows the post-COVID decline aligns with pre-2000 recession patterns, where the labor share rises during recessions, falls in recovery, and later rebounds, unlike the steeper declines without rebounds seen after 2000.
- Sectoral reallocation spiked initially during COVID but quickly subsided; however, it did not drive the aggregate labor share decline, which was primarily due to within-industry changes.
- A shift-share decomposition confirms that within-industry declines, not between-industry reallocation, caused the fall in the aggregate payroll share during COVID and previous recessions.
- The findings suggest the post-COVID decline is not a new phenomenon but follows historical cyclical patterns and within-industry forces, with no evidence of evolving differently from past episodes.