Corporate Profits Are Rising. So Where Are the Jobs?
Reading the Economy — Day 5
The labor market has been slow for a while. Hiring is weak, workers are changing jobs less often, and people who lose work are taking longer to find the next position.
None of that is especially surprising anymore. What is surprising is what is happening on the other side of the economy: corporate profits are high, economic output is growing, industrial production has risen, and productivity is improving.
So:
If corporate America is doing reasonably well, why are jobs still so scarce?
Corporate Performance Remains Strong
Corporate profits from current production reached $4.43 trillion in the first quarter of 2026, up from $4.35 trillion in the previous quarter and well above 2024 levels. Real GDP also continued expanding.
Industrial production has moved higher over the period shown in the chart, and productivity has improved as well.
BLS estimates that nonfarm business productivity rose 2.2% from a year earlier in the second quarter, with output rising faster than hours worked.
So the corporate side of the economy does not look starved for activity. That makes weak hiring more interesting.
The Issue Is Not Simply Recession
If profits were collapsing, production were falling, and firms were under severe financial stress, weak hiring would be easy to explain. But that is not the picture we have.
Instead, companies appear to be maintaining output and profitability while becoming much more cautious about adding workers. That suggests the labor weakness may be less about broad economic collapse and more about how firms are choosing to manage growth.
One possible explanation is straightforward:
Companies may be prioritizing margins, efficiency, and cost control over headcount growth.
That is not unusual, but it matters more when worker bargaining power is weak.
The Balance of Power Has Shifted Back Toward Employers
During the post-pandemic labor shortage, workers had unusual leverage: employees changed jobs aggressively, firms raised wages, remote work became a key bargaining chip, and employers had to compete hard for people.
That environment is gone:
- Workers are quitting less.
- Job searches are taking longer.
- Hiring is subdued.
When outside options become scarcer, employers gain leverage. They face less pressure to raise compensation aggressively, can impose stricter workplace policies, delay hiring, and demand more from existing workers.
The balance of bargaining power has shifted back toward employers, and firms are now operating from a much stronger negotiating position.
That matters because it changes who captures the benefits of economic growth.
Labor Is Receiving a Smaller Share
This may be the most striking evidence in the dataset. BLS reports that labor's share of output fell to 52.9% in the second quarter of 2026, the lowest level in a series dating back to 1947.
- Productivity increased
- Output increased
- Hours worked barely changed
- Real hourly compensation was essentially flat to slightly lower
That does not prove companies are deliberately suppressing wages or employment. But it does show something important:
Workers are not capturing a growing share of the economy's gains.
That makes the gap between strong corporate results and weak worker opportunity much easier to understand.
What About AI?
AI is now deeply woven into the labor-market narrative: executives talk about efficiency, companies announce restructurings alongside AI investments, and workers hear constant predictions about automation and job loss.
That fear matters, but current evidence does not support the idea that an economy-wide AI productivity boom is already responsible for weak hiring.
A recent international survey summarized by NBER found that more than 90% of executives reported no employment effect from AI over the previous three years, while 89% reported no impact on labor productivity. The average realized productivity gain was only about 0.29%.
That is a critical distinction:
Expected AI productivity is large. Realized AI productivity is still modest.
AI may eventually transform labor markets dramatically, but that is not the same as saying it already has.
AI May Still Be Affecting Behavior Before Productivity
This is where things get more complicated. Even if AI has not yet produced a measurable economy-wide productivity revolution, expectations about AI can still influence decisions:
- Executives may delay hiring because they expect future automation.
- Managers may hesitate to fill roles they believe could soon change.
- Investors may reward companies for announcing AI-driven efficiency.
- Workers may become more reluctant to quit because they are uncertain about future demand for their skills.
So AI may already matter through expectations and psychology even before the productivity data fully justify the hype.
That makes it something like a labor-market boogeyman with an unusual twist: the threat may be overstated today, while still becoming very real tomorrow.
That is worth watching carefully, but we should not use tomorrow's potential disruption to explain today's hiring weakness without evidence.
Wall Street Is Skeptical Too
The uncertainty is not confined to workers. A recent Wall Street Journal report from a gathering of veteran investors described increasing anxiety about the scale of AI investment.
One longtime technology investor was asked whether U.S. companies would actually earn an adequate return on the trillions being spent. His answer was essentially: nobody knows yet.
The article also notes that AI investment has become large enough to materially affect economic growth and bond financing even though investors remain uncertain about when the returns will arrive.
That gives us an important economic distinction:
AI investment can increase GDP before AI productivity has actually materialized.
Data centers, chips, and power infrastructure all count as investment that strengthens economic growth today, even while the ultimate return on those investments remains uncertain. Strong investment spending should not automatically be interpreted as proof that AI has already revolutionized productivity.
Post-Pandemic Overhiring Still Matters
There is another simpler explanation we should not ignore: many firms expanded aggressively during the pandemic and immediate reopening period. Technology companies in particular added workers rapidly when demand, valuations, and capital availability were unusually strong.
Some of today's weak hiring may simply reflect a long normalization from that period, with companies concluding that they already have enough people.
When combined with higher interest rates, tariff uncertainty, geopolitical risk, elevated costs, and weaker worker bargaining power, there is little reason for management to expand payrolls aggressively if profits remain healthy without doing so.
That may explain much of the current behavior without requiring either an AI revolution or a recession.
The Real Divide May Be Capital Versus Labor
That brings us back to the data. Corporate profits, GDP, industrial production, and productivity are all up—while worker mobility is weak, hiring is weak, labor-force participation has fallen, unemployment duration stays longer, and labor's share of output has fallen to a historic low.
Perhaps the most useful way to describe the current economy is not “strong versus weak,” but rather:
Strong for whom?
From the perspective of corporate earnings and output: Conditions look fairly resilient.
From the perspective of a job seeker or worker negotiating pay: The economy can feel considerably weaker.
Those two experiences can easily coexist once we separate aggregate output from individual opportunity.