Tech CEOs Say AI Is Ushering in an Age of Abundance, But Instead the Evidence Shows That It's Pushing Down Wages

"As economist Dean Baker explains for the Center for Economic Policy and Research, for AI companies' current valuations to make sense, they'd need profit growth over the next five years that requires one of two things: either AI starts bringing in cash by the truckload, or profits for all the other corporations in America collapse. Both prospects seem extremely unlikely, yet the AI investments keep coming - and they seem to be dragging American workers into an economy their wages can't support."

"From 2013 until the pandemic, labor compensation as a share of consumption - the percentage of national consumer spending compared to wages - hovered between 75 and 76 percent, according to data cited by Baker. It spiked in 2020, due mainly to a rise in unemployment and stimulus checks sent out in 2020 and 2021. Instead, the share dipped dramatically, dipping below 72 percent by the second half of 2025."

"That percentage decrease might not sound like much of a difference, but as Baker explains, it represents about $1 trillion in annual consumption - a boatload of spending that's happening without any wage growth to support it. Americans, in other words, are buying stuff at levels their paychecks can't justify, propped up by the AI bubble. Basically, that $1 trillion is fueled by inflated stock portfolios, venture capital gambles, and data center construction, not by workers who are doing the spending."

Current AI company valuations imply profit growth over the next five years that would require either massive AI-generated revenue or a collapse in profits across other American corporations. Labor compensation as a share of consumption fell from roughly 75–76 percent pre-pandemic to below 72 percent by mid-2025, representing about $1 trillion in annual consumption unsupported by wage growth. That $1 trillion is financed by inflated stock portfolios, venture capital bets, and data center construction rather than worker income. A sudden collapse in AI investment could remove roughly 3.0 percent of GDP and trigger a recession.

Read at Futurism