AI Wealth Truth (09): Why Economic Growth Has Nothing to Do With Your Wage Growth

I. Whenever economic growth figures are released, governments and media celebrate. "GDP grew 5% this year!" It implies we all become more prosperous. But have you noticed: GDP grew, but did your wages rise?

II. Many people's lived experience is: the economy is growing, but my life is not getting better. Prices rose. Housing rose. Education and healthcare costs rose. Wages? A bit higher than ten years ago, but purchasing power hardly changed. You might think it is your illusion. No. This is a fact in economics that is often deliberately ignored: the labor share keeps falling.

III. What is the "labor share"? GDP can be split into two parts: wages paid to labor, and profits paid to capital owners. Labor share = total wages / GDP. If this ratio is stable, then when the economy grows, workers and capital owners benefit proportionally. If it falls, it means a larger share of growth flows to capital owners.

IV. For a long time, economists thought the labor share was a "natural constant". Roughly around two-thirds. Workers take two-thirds of GDP. Capital takes one-third. This was called one of "Kaldor's Facts." Textbooks tell us: the ratio is very stable. No need to worry.

V. But after the 1980s, this "natural constant" began to break. From 1980 to 2020, the U.S. labor share fell from 65% to 58%. That sounds like only a 7-point drop. But it means hundreds of billions of dollars each year moving from workers' pockets to capital owners' pockets. Accumulated, it is a wealth transfer of trillions.

VI. This trend is not limited to the United States. Data from the International Labour Organization shows: over the past forty years, labor shares have been falling in most countries. Developed countries fell. Developing countries fell too. This is a global and systemic wealth transfer.

VII. Why does this happen? First, globalization. Since the 1980s, capital can flow freely to wherever labor is cheapest. U.S. workers have to compete with Chinese workers for the same jobs. Workers' bargaining power declines. Wages are suppressed. Capital owners profit from global labor competition.

VIII. Second, the decline of unions. In the 1950s, one-third of U.S. private-sector workers were union members. Today it is only 6%. Unions are collective power for workers against capital. Without unions, workers bargain one by one with employers. Employers always have the upper hand.

IX. Third, technological change. Automation and digitization make many jobs replaceable by machines. Labor becomes less "irreplaceable". If you will not do it, machines can. Or cheap labor can. This further weakens workers' bargaining power.

X. Fourth, rising corporate market concentration. A handful of giants control larger and larger market share. Amazon, Walmart, Google, Facebook. These companies are not only monopolies in product markets, but also near-monopolies in labor markets. When a region has only one major employer, a monopsony, wages get pushed down systematically.

XI. Fifth, financialization. The goal of public companies shifted from "creating value" to "raising stock prices". Shareholder returns become the top priority. Methods include layoffs, cost cutting, outsourcing, stock buybacks. All of these transfer value from employees to shareholders.

XII. You might ask: if the total cake is growing, even if the labor share falls, do wages not still rise in absolute terms? In theory, yes. If GDP grows fast enough, wages can rise even as labor share falls. But in reality, for most workers, inflation-adjusted real wages have barely grown.

XIII. Data from the Economic Policy Institute shows: From 1979 to 2019, U.S. productivity rose by 60%. But the median wage rose only 16% after inflation. Workers shared 16% out of a 60% productivity gain. Where did the remaining 44% go? Into capital owners' pockets.

XIV. This explains why "the economy is growing, but I cannot feel it." Because the gains did not flow to you. They flowed to shareholders, executives, and asset owners. GDP growth is not your growth.

XV. AI will push this trend to the extreme. AI is a technology in the "capital" category. It is machines, software, fixed investment. Its output belongs to capital owners, not labor. As AI replaces more labor, the labor share will fall further.

XVI. MIT economist Daron Acemoglu studied AI's impact on the labor share. He found that AI differs from traditional automation. Traditional automation often creates new jobs to complement the jobs it replaces. But AI may directly eliminate jobs without creating enough substitutes. AI may be the first purely substitutive technology.

XVII. Even more worrying is the speed of AI. Traditional substitution takes decades. Workers have time to retrain and transition. AI substitution may take only a few years. You have not had time to learn new skills before your role disappears. The adaptation window is compressed to nonexistence.

XVIII. Some people say AI will create new jobs. Just as cars replaced carriage drivers but created truck drivers. This analogy may fail this time. Because AI is general-purpose. It does not just replace one category of job. It can replace almost all cognitive labor. "New jobs" may also be done by AI.

XIX. Another problem: the few "new jobs" created by AI may be highly concentrated. Engineers who design and train AI get high wages. Everyone else becomes "data labelers" or "Uber drivers". Labor markets polarize further. Very few high-paying roles, very many low-paying roles, the middle disappears.

XX. What does this mean for individuals? Do not use GDP growth to measure your situation. What matters is: has your position in the value chain improved? If you provide only labor, you are downstream in the value chain. In the AI era, the gains flow almost entirely upstream, to capital owners.

XXI. To share the dividends of the AI era, you need to become a capital owner. Even a small fraction. Hold stocks of tech companies. Invest in AI-related funds. Let your money work for you, instead of only exchanging labor for wages. This is not financial advice. It is survival logic.

XXII. Of course, for people already in scarcity, this is nearly impossible. You have no extra money to invest. Your monthly wage goes entirely to survival expenses. This is why falling labor share intensifies a vicious cycle of inequality. People without capital find it harder and harder to obtain capital. The rich buy assets and assets appreciate. The poor can only sell labor and labor depreciates.

XXIII. Economic growth is no longer a rising tide that lifts all boats. It is a tide that lifts only yachts. Small boats get swallowed. The chain between GDP growth and your well-being has already broken. In the AI era, this crack will only widen.