Labor Compensation Has Lost Share Over Time

Most Americans still derive a substantial portion of their income from employment, but the chart highlights a long-term change in the composition of U.S. personal income. Compensation of employees accounted for more than 70% of personal income during much of the 1960s and early 1970s. Since then, that proportion has generally moved lower, reaching approximately 60.3% in the latest reading displayed.

The decline has not occurred in a straight line. The series experienced periods of stabilization and temporary increases, but the broader direction has remained downward over several decades. This makes the trend different from a conventional employment-cycle indicator, which typically rises and falls more sharply with recessions and expansions.

The chart therefore points to a structural change in the sources of household income rather than simply a temporary change in wage growth.

Non-Labor Income Has Become More Important

As compensation has represented a smaller share of personal income, other sources have accounted for a larger proportion of the total. These can include income generated from investments, rental properties and other non-labor sources.

This shift has important implications for how changes in financial markets can affect household finances. When a greater share of personal income comes from assets rather than wages, movements in equity markets, interest rates, property values and investment income can have a greater influence on the overall income environment.

The chart also shows a particularly sharp temporary disruption around 2020, when the compensation share dropped dramatically before recovering. That period stands out from the longer-term trend and illustrates how unusual economic shocks can temporarily distort the composition of personal income.

A Changing Income Mix Has Broader Economic Implications

The changing composition of personal income matters for investors because different income sources respond differently to economic conditions. Wage income is closely connected to employment and labor demand, while investment and property income can be influenced by asset prices, interest rates and capital-market conditions.

For U.S. households, a larger role for non-labor income can also create greater differences in financial outcomes depending on asset ownership. Households with significant investment or property exposure may experience income changes that differ substantially from those whose finances depend primarily on wages.

For U.S. and Israeli investors monitoring the American economy, the long-term decline in labor compensation’s share provides another perspective on the relationship between employment, consumer income and asset markets. A strong labor market can support household spending, but personal income is increasingly shaped by factors beyond employment alone.

The key takeaway from the chart is therefore structural. The U.S. economy has gradually moved toward a personal-income composition in which compensation from employment represents a smaller share than it did several decades ago. Whether that trend continues will depend on wage growth, employment, investment returns, property income and the broader evolution of household wealth.