AI in action · Markets
Labor's Share Hit a Record Low. Is AI Showing Up?
US productivity rose at a 3.6% annual rate in the third quarter and labor's share of output fell to 53%, the lowest since records began in 1947. Economists disagree on how much is AI.
The US economy produced more per hour of work in the summer than economists expected, and workers kept less of it. The Bureau of Labor Statistics said on Thursday, November 5, that nonfarm labor productivity rose at a 3.6% annualised rate in the third quarter, against a consensus of 2.9% and 2.1% in the second quarter. Unit labor costs fell 0.7%, the first decline since the second quarter of 2025, and the labor share of output fell to 53%, the lowest reading in a series that starts in 1947.
The longer trend is what has drawn attention. Since the end of 2022, output in the nonfarm business sector has grown about 12% while hours worked rose less than 1%, according to Indeed Hiring Lab's reading of the data, and productivity has grown at about 2.2% a year since late 2019, against 1.5% in the previous business cycle. Measured on a different basis, Haver Analytics calculated that labor's share of business-sector income fell to 49.1%, also the lowest since 1947, and noted that the decline began in 2025, about two years after ChatGPT was released.
Haver's economist has long argued that cheaper AI will push companies to substitute software for people, and wrote that "these latest numbers at least hint at the emergence of the impact of AI" in the aggregate data, while calling them "certainly not definitive" and noting that other factors might be at work. Aubrey Woessner of Indeed Hiring Lab was more cautious: AI is helping by giving workers better tools, but "an AI-driven sea change in efficiency gains has not yet shown up clearly in the data", and greater job switching could also be lifting productivity.
Both agree on the part that matters for households. Real hourly compensation has risen far less than productivity since 2019, about 7% against 16% on the indexes Indeed cited. "Productivity gains continue to build, but they have yet to show up broadly in pay," Woessner wrote. For investors the same gap shows up as profit margins: when output per hour rises and labor costs per unit fall, more of each dollar of sales stays with companies, one reason margins can hold up even in a year of high energy prices.
For the Federal Reserve the report is mildly reassuring. Falling unit labor costs mean wage growth is not adding to inflation, which weakens one argument for raising rates in December, and the jobless claims released the same morning, 189,000, showed no sign of layoffs. The open question is whether the labor share keeps falling. If it does while productivity stays high, the debate over whether AI is reshaping the economy will move from forecasts to the national accounts.
Sources: Indeed Hiring Lab — Q3 2026 Productivity and Costs Release: Doing More with Less (Nov 5, 2026); Haver Analytics — Labor's Share of Income Falls to All-Time Low in Third Quarter; Advisor Perspectives — US Labor Productivity Increases at Fastest Pace in a Year (Nov 5, 2026); CNBC — Stock market news for Nov. 5, 2026 (productivity and jobless claims)