America has grown wealthier than at almost any point in its history, yet a growing number of people cannot shake the feeling that this prosperity is not reaching them. A new Goldman Sachs research note gives that feeling a name, and the explanation is more complicated than a simple story about rich against poor.
The bank’s economists spent weeks digging into decades of income data to answer a question that has hovered over the past several years: is the American middle class actually shrinking? Their answer is yes, but not for the reason most people assume.
Goldman says most Americans don’t own enough to benefit from the economy
The headline number in Goldman economist Abhay Duggirala’s September 15 research note, titled “What Explains the Decline in the Labor Share of Income?”, is stark. Labor’s share of income in the nonfarm business sector has fallen roughly 7.5 percentage points since the 1990s, based on Bureau of Labor Statistics data cited in the report, according to Fortune.
That decline has accelerated into genuinely record territory this year. BLS data released in early September put labor’s share of nonfarm business output at 52.8% in the second quarter of 2026, the lowest reading since the agency began tracking the measure back in 1947, according to Fortune.
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The numbers on who is winning are not subtle. The top 1% of U.S. households held 31.6% of total household net worth as of the third quarter of 2025, the highest share on record since the Federal Reserve started tracking the data in 1989, as reported by TheStreet.
The stock market tells the same story in a different way. The top 10% of households own more than 87% of all corporate equity and mutual fund shares. When the market goes up, that is mostly who it goes up for. Pew Research has been tracking the middle class squeeze separately the share of Americans in middle-income households dropped from 61% in 1971 to roughly 52% by 2015.
Why the 40% isn’t what it looks like
Goldman’s report makes the story more complicated than it looks. Duggirala argues that roughly 40% of the labor share decline reflects three accounting and measurement distortions rather than money genuinely moving from paychecks into corporate profits, Fortune reported.
The first one is a tax story from 1986. The reform that year raised costs for C-corporations, so owners moved into pass-through structures. The income was still there. The wage label was not.
Economist Eric Zwick told Fortune the tax code “places a lot more burden on salaried/wage-rate workers than other types,” pushing activity out of traditional payroll reporting at both ends of the income scale, into pass-through business income at the top and into contract or part-time work at the bottom, Fortune reported.
The other two are accounting issues around depreciation and how equity compensation gets reported. Both pull the labor share lower on paper without workers necessarily losing ground in their actual paychecks. Put the three together and Goldman says 40% of the decline disappears.
The remaining 4.5 points are real, according to TheStreet.
The upper-middle-class trap
The 4.5-point residual shows up in everyday life as something Nick Maggiulli, chief operating officer of Ritholtz Wealth Management, calls the “upper-middle-class trap.” A cohort earning $200,000 to $400,000 who feel squeezed despite objectively high incomes.
Maggiulli describes this group as working more and relaxing less to buy products and services of declining quality, driven into a financial arms race for scarce positional goods like elite school zones and premium travel, Fortune reported.
That pressure is visible even among higher-income consumers. Dollar General CEO Todd Vasos, speaking at the Goldman Sachs Global Consumer and Retail Conference on September 15, said that even customers earning $100,000 or more are increasingly behaving like lower-income shoppers.
“Even that middle to upper middle is acting more like a lower income shopper these days,” he told the conference.
The people winning the arms race Maggiulli describes are disproportionately households that both draw a salary and hold meaningful equity, capturing gains on both the labor and capital side of Goldman’s ledger simultaneously. Workers whose wealth is concentrated primarily in their paychecks have far less exposure to the capital gains that increasingly accrue to households with significant financial assets.
Broader wealth data reinforces how uneven the divide has become. Total U.S. household net worth climbed to $175.3 trillion at the end of 2025, but that growth is heavily concentrated at the top, even as rising costs for housing, child care and health care continue to put pressure on the financial security of households in the middle, according to TheStreet.
What this means going forward
Goldman’s own analysts expect artificial intelligence to push the labor share even lower in the years ahead. That forecast lines up with the bank’s separate research estimating AI could displace a significant share of American workers over the next decade, concentrated heavily in customer service, back-office administration and other repetitive cognitive roles.
It is already showing up in hiring. Job openings in industries with high AI exposure have grown more slowly since the second half of 2022. The U.S. is further along that curve than most other developed economies.
The labor share sitting at its lowest level in nearly 80 years of record-keeping is not a temporary blip Goldman expects to reverse on its own.
Whether the coming AI-driven acceleration deepens the upper-middle-class trap Maggiulli describes, or eventually forces a broader reckoning over who actually captures the gains from economic growth, remains the defining economic question of the years directly ahead.
