U.S. businesses increased their output with only a small rise in the number of hours worked during the second quarter of 2026. But labor compensation accounted for a smaller share of business-sector output than at any point since records began nearly eight decades ago.
The contrast raises an important question for the economy: when businesses become more productive, how much of the resulting value reaches workers?
According to preliminary figures released by the U.S. Bureau of Labor Statistics on August 6, productivity in the nonfarm business sector increased at a seasonally adjusted annual rate of 1.4% during the second quarter.
Output rose at a 1.7% annual rate, while total hours worked increased by only 0.3%. Compared with the same quarter of 2025, productivity was 2.2% higher.
More output with little growth in working hours
Productivity measures how much inflation-adjusted output is produced for each hour worked. It rises when output grows faster than the total number of hours needed to produce it.
In the second quarter, the U.S. nonfarm business sector produced more while working hours changed relatively little. That does not necessarily mean employees individually worked harder. Productivity can improve for many reasons, including better equipment, new technology, changes in production, improved organization or greater use of existing capacity.
The quarterly figures are annualized. In other words, the 1.4% figure shows what the quarter-to-quarter pace would look like if it continued for a full year. It does not mean productivity literally increased by 1.4% during the three-month period.
Labor’s share fell to 52.9%
The most striking figure in the report was the labor share, which fell to 52.9%.
That was the lowest level recorded since the BLS series began in the first quarter of 1947.
Labor share measures how much of the sector’s current-dollar value-added output is attributed to labor compensation. According to the BLS technical notes, compensation includes wages, salaries, employer-paid benefits and an estimate of compensation for self-employed proprietors.
It is therefore broader than workers’ take-home pay. It is also not the percentage of company sales paid directly to employees.
Even so, the direction of the measure is significant. It shows that labor compensation represented a historically small share of the value created in the nonfarm business sector during the quarter.
The remaining share was not all corporate profit
A labor share of 52.9% does not mean companies kept the remaining 47.1% as profit.
Under the BLS productivity methodology, the nonlabor portion also includes depreciation, taxes on production and imports, interest, rental income and other payments.
The report therefore does not show exactly who captured the value that did not flow through labor compensation. It does, however, show that the proportion attributed to labor was lower than at any previous point in the series.
Compensation rose before inflation, but slipped after it
Hourly compensation increased at a 2.7% annualized rate during the second quarter. After adjusting for consumer-price changes, real hourly compensation declined at a 3.1% annualized rate.
Compared with the second quarter of 2025, hourly compensation was 3.7% higher before inflation. Real hourly compensation was 0.1% lower.
These are broad averages across the nonfarm business sector. They do not mean every worker experienced a decline in real pay. Compensation can vary widely between industries, occupations and individual employers.
Productivity helped limit the rise in labor costs
Unit labor costs increased at a 1.3% annualized rate during the quarter and were 1.4% higher than a year earlier.
Unit labor costs compare compensation with the amount of output produced. When hourly compensation rises, labor costs per unit tend to increase. When productivity improves, businesses produce more output for each hour of labor, offsetting part of that increase.
In the second quarter, hourly compensation rose at a 2.7% rate, but productivity increased by 1.4%. That left unit labor costs growing more slowly than compensation itself.
For businesses, this is one of the main economic benefits of productivity growth. Companies may be able to increase wages or benefits without seeing the same-sized increase in labor costs for every unit they produce.
The BLS is scheduled to publish its revised second-quarter estimates on September 3, 2026.
