The big money in today’s economy is going to capital, not labour

Subscribe to enjoy similar stories. In 1985, IBM was America’s most valuable company, one of its most profitable, and among its largest employers, with a payroll of nearly 400,000. Today, Nvidia is nearly 20 times as valuable and five times as profitable as IBM was back then, adjusted for inflation.

Yet it employs roughly a 10th as many people. That simple comparison says something profound about today’s economy: Its rewards are going disproportionately toward capital instead of labor. Profits have soared since the pandemic, and the market value attached to those profits even more.

The result: Capital, which includes businesses, shareholders and superstar employees, is triumphant, while the average worker ekes out marginal gains. The divergence between capital and labor helps explain the disconnect between a buoyant economy and pessimistic households. It will also play an outsize role in where the economy goes from here.

The brute financial force of all that wealth means market fluctuations, like last week’s, matter more for consumer spending. Meanwhile, artificial intelligence could funnel even more of economic output toward capital instead of labor. Last week may be a taste.

Amid reports that layoffs are climbing and job openings plunging, especially for professionals exposed to AI, the Dow Jones Industrial Average closed above 50000 for the first time. Gross domestic product measures all the value added in the economy. For example, the value added by a manufacturer is its sales minus inputs such as parts and raw materials.