Decoupling Value from Labor

admin · June 21, 2025, 12:16pm

This article was written by Claude based on a deep research report from Gemini and then lightly edited by the administrator. Inaccuracies may exist.

The Great Disconnect: How Economic Value Is Breaking Away from Human Work

For most of economic history, there was a simple understanding: work hard, create value, get paid accordingly. If you spent more hours making something, it was worth more. If workers became more productive, wages would rise along with it. This relationship felt so natural that early economists built entire theories around it.

That relationship is breaking down.

Today, we’re witnessing something unprecedented: economic value increasingly flows to places that have little to do with human labor. Companies achieve billion-dollar valuations with skeleton crews. Productivity soars while wages stagnate. The old promise that a rising tide lifts all boats has given way to something more like a flood that lifts only the yachts.

This isn’t just an academic curiosity—it’s reshaping how prosperity gets distributed in modern society. Understanding why it’s happening, and what it means, might be one of the most important economic questions of our time.

When Labor Was King

To understand where we’re going, it helps to remember where we came from. Classical economists like Adam Smith and David Ricardo believed that labor was the primary source of economic value. In their view, the price of something reflected how much human effort went into making it—what they called the “labor theory of value.”

Karl Marx took this idea further, arguing that all value ultimately came from human work. He distinguished between the usefulness of something (a glass of water is valuable to someone thirsty) and what it could be traded for in the market. For Marx, that market value existed “only because human labour is objectified or materialized in it.”

This made intuitive sense in an industrial world where value creation was visible: more workers on an assembly line meant more cars; more farmers in the fields meant more food. The connection between human effort and economic output seemed direct and undeniable.

The Subjective Revolution

Modern economics largely abandoned the labor theory of value, replacing it with something called the “subjective theory of value.” This approach says that things are worth whatever people are willing to pay for them, based on usefulness, scarcity, and personal preferences—not just the labor that went into making them.

Consider a diamond found by chance versus a hand-carved chair that took weeks to make. Under the labor theory, the chair should be worth more. But if nobody wants the chair and everyone wants the diamond, the market tells a different story. Value, in this view, isn’t inherent in the object—it’s in the eye of the beholder.

This theoretical shift matters because it opens the door to value coming from sources beyond direct human labor: brilliant ideas, network effects, brand recognition, or simple scarcity. If you accept this framework, then value naturally flowing away from labor and toward other sources isn’t a breakdown of economic principles—it’s just how markets work.

The Numbers Don’t Lie

Whatever theory you prefer, the empirical evidence is striking. Two key trends tell the story:

The Shrinking Labor Share: Economists track something called the “labor share”—the portion of economic output that goes to workers as wages and benefits. For decades after World War II, this remained remarkably stable in the U.S., hovering around 60-62% of gross income. Then something changed.

Starting in the late 1970s, the labor share began declining. By 2011, it had fallen to just 56%—an all-time low. While it recovered slightly afterward, the long-term trend is clear: workers are getting a smaller slice of the economic pie, even as the pie itself grows larger.

The Great Decoupling: Perhaps more striking is what happened to the relationship between productivity and wages. From the end of World War II through the 1970s, these two measures moved in lockstep. When workers became more productive, they earned more money. The relationship was so consistent it seemed like a law of nature.

Then it broke. Since the 1970s, productivity has continued climbing while wages have largely stagnated. It’s as if the economy learned to create more value without sharing the benefits with the people doing the work.

Some economists argue this “decoupling” is partly a measurement problem. When you include benefits like health insurance and retirement contributions, they say, total compensation has kept up better with productivity. When you adjust for the right price indices, the gap narrows.

But even the most generous adjustments can’t explain away the core phenomenon: the benefits of economic growth have become increasingly concentrated among highly skilled workers and capital owners, while broad-based, middle-skilled labor has been left behind.

The Technology Steamroller

The most visible driver of this shift is technology, particularly automation and artificial intelligence. These aren’t just making work more efficient—they’re fundamentally changing what kind of work creates value.

AI and automation excel at routine, predictable tasks. They can handle customer service calls, process insurance claims, manage inventory, even perform certain types of surgery. What they’re doing isn’t just augmenting human workers—they’re replacing them entirely in many contexts.

The impact follows a predictable pattern. Technology tends to eliminate middle-skilled jobs (think factory workers, bank tellers, or administrative assistants) while creating demand for high-skilled workers who can work with the technology. Meanwhile, many low-skilled service jobs remain relatively safe because they’re still cheaper to do with humans than machines.

This creates what economists call “job polarization”—employment growth at the top and bottom of the skill distribution, with the middle hollowing out. The result is a labor market that looks increasingly like an hourglass: lots of highly paid knowledge workers at the top, lots of poorly paid service workers at the bottom, and not much in between.

But technology doesn’t just change who works—it changes where value comes from. Consider a modern car factory. The value being created increasingly comes from the robots, the software controlling them, and the intellectual property embedded in the design. The human workers are still important, but they’re a smaller part of the value creation equation than they once were.

Economists call some of these innovations “so-so technologies”—they reduce labor costs without creating much additional value or new opportunities for workers. They’re good for corporate profits but don’t expand the overall economic pie in ways that benefit labor.

The Rise of Finance

While technology gets most of the attention, another powerful force has been quietly reshaping how value gets distributed: the financialization of the economy. This refers to the growing dominance of financial markets and the relentless focus on “shareholder value” in corporate decision-making.

Financialization affects workers in several ways:

Capital Goes Global, Labor Stays Local: When companies can easily move money and operations around the world, they gain enormous leverage over workers. The credible threat of moving a factory to another country weakens workers’ bargaining power, even if the move never actually happens.

Financial Costs Get Passed Through: As companies take on more debt and face pressure to pay higher dividends, these financial costs get treated as overhead that must be covered. Companies respond by raising prices and suppressing wages, effectively transferring wealth from workers to financial investors.

Short-Term Thinking: The pressure to hit quarterly earnings targets and keep stock prices rising leads to what economists diplomatically call “ruthless cost-cutting”—layoffs, wage freezes, and benefit reductions, all in service of maximizing returns to shareholders.

Household Debt as Control: As workers take on more debt for housing, education, and healthcare, they become more vulnerable. A worker worried about making mortgage payments is less likely to go on strike or demand better conditions. This shifts the power balance away from labor and toward capital.

This isn’t just market forces at work—it’s a systematic reallocation of economic power that happens regardless of how productive workers become.

The Intangible Economy

Perhaps the most fundamental shift is the rise of intangible assets—things like intellectual property, brand value, software, and data. These now represent about 90% of the value of companies in the S&P 500, a complete reversal from the industrial economy where physical assets dominated.

This matters because intangible assets have different economics than physical ones. Once you’ve developed a piece of software or established a brand, you can scale it globally with minimal additional labor. Google’s search algorithm serves billions of queries with relatively few human employees. Facebook connects billions of people with a workforce that would have been considered tiny for a company of its influence in previous eras.

The result is companies with extraordinary valuations per employee. When Roblox went public, its market capitalization of around $48 billion was spread across fewer than 1,000 employees—roughly $49 million in market value per worker. Google, despite employing 144,000 people, still generates over $13 million in market value per employee.

These companies create immense value, but most of it flows to shareholders and a relatively small number of highly skilled employees, not to a broad base of workers. The value comes from the scalability of ideas, not the accumulation of human effort.

The Rent-Seekers

Finally, there’s rent-seeking—activities designed to capture existing wealth rather than create new value. This includes everything from lobbying for favorable regulations to creating monopolies that extract profits without providing additional benefits.

Rent-seeking is particularly pernicious because it directly redistributes wealth without creating any. When a company successfully lobbies for tariff protection, it can raise prices and increase profits, but society as a whole becomes poorer. When tech platforms use network effects to create monopolistic positions, they can extract enormous rents from users and advertisers.

These activities concentrate wealth in the hands of those skilled at manipulating economic and political systems, rather than those engaged in productive work. They represent a pure transfer from labor (and consumers) to capital.

A New Economic Reality

The evidence strongly supports the conclusion that economic value is increasingly disconnected from broad-based human labor. This doesn’t mean work has become unimportant—highly skilled workers are more valuable than ever. But it does mean that most workers are getting a smaller share of the economic gains they help create.

This shift is driven by powerful, reinforcing forces:

Technology that can automate routine work at scale
Financial systems that prioritize capital returns over worker welfare
Intangible assets that can generate enormous returns with minimal ongoing labor
Rent-seeking that redistributes wealth to those with economic and political power

The result is an economy where prosperity increasingly flows to capital owners, highly skilled workers, and those positioned to benefit from financialization and rent extraction. The old middle-class promise—that steady work would lead to shared prosperity—is breaking down.

None of this was inevitable. These are the results of specific technologies, policies, and institutional arrangements. Different choices could have led to different outcomes. But understanding why value is decoupling from labor is the first step toward thinking seriously about what to do about it.

The transformation of how value gets created and distributed may be the defining economic challenge of our time. The societies that figure out how to share the benefits more broadly will likely be the ones that thrive in the decades ahead. Those that don’t may find that all their impressive productivity gains come at the cost of social cohesion and political stability.

The age of labor-centered value creation is ending. What comes next is still being written.

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