Speech

American Inequality and the Future of AI

At Yale University, New Haven, Connecticut

Thank you for the opportunity to speak to you today.1 In a speech earlier this year, I explored scenarios in which artificial intelligence (AI) could affect economic inequality, for better or for worse.2 My focus in those remarks was on the AI side of this relationship, and today I would like to return to this topic by first providing some important context about inequality in the United States.

Inequality is an aspect of every economy, and understanding the extent and evolution of inequality in the United States can help in forming a clear view of the economic outlook and how the economy is likely to react to new developments. Widening inequality may also, depending on many factors, reflect a decline in economic opportunity for many people, which can limit the economy's productive capacity.

Today, I will begin by summarizing the current state of economic inequality in the United States, assisted by new results from a long-running survey of households conducted by the Federal Reserve, and then show where this fits into the history of inequality over the past century or so. I will explore some of the forces that have shaped inequality, and what these forces may indicate about how AI is likely to affect the way wealth and income are distributed.

Wealth and Income Inequality Today Up-to-date and detailed information about inequality in the United States comes from the latest edition of the Federal Reserve's triennial Survey of Consumer Finances, conducted in 2025 and published just last month.3 The survey confirms that both wealth and income are highly concentrated and that inequality is greater for wealth. The top 10 percent by income of households receive almost one-half of all income in the United States and the top 1 percent receive about one-fifth of income.4 As for wealth, the wealthiest 10 percent of households hold nearly three-fourths of all wealth, and the top 1 percent hold about one-third. By contrast, the entire lower half of households, as measured by wealth holdings, have only 2 percent of wealth. Low wealth means it's also harder to get by every day. Another Fed survey of household finances conducted each year, the Survey of Household Economics and Decisionmaking, finds that 31 percent of respondents in 2025 didn't have the cash to cover an emergency expense of $500 or more.5

Wealth is even more highly concentrated among the very wealthiest. One-third of wealth is held by the upper 1 percent—that's nearly $60 trillion. There is even more concentration at the very top. The households in the upper 0.1 percent, which is only 135,000 individuals and families, own one-sixth of our nation's wealth. A household at the lower edge of the top 1 percent has 75 times as much wealth as the median household in the middle of the distribution—$16.3 million compared with $215,000 for a household in the middle. A household at the lower edge of the 0.1 percent of the wealthiest has 300 times as much wealth as the median household.

Wealth concentration has increased at the very top. Using Forbes magazine's tally of the 400 wealthiest individuals, together with data from the Survey of Consumer Finances, a rough estimate is that their share of total wealth rose from 3 percent in 2022 to 4 percent in the most recent survey. Forbes counts nearly 1,000 U.S. billionaires.6

Digging into the sources of widening inequality, the wealth of those at the top is primarily held in the form of business assets. Research using data from the Survey of Consumer Finances back to the 1940s shows that returns on business equity have been a major source of widening wealth inequality over the decades.7 Most of the income for these wealthy households is in capital income—interest, dividends, capital gains, and business profits—rather than wages and salaries. Unlike these higher-income or wealthier households, most income for middle-class households comes from their paychecks. And it's harder to build wealth that way.

Although the largest asset class for wealthy households is typically stocks and other financial assets, a substantial amount of their capital income also comes from ownership of private businesses. These private businesses come in two broad types: an actively managed business—such as a plumbing business, retail store, or manufacturing firm—and a passive investment in a business, commonly known as private equity. Owning and running a business has long been a way that households become wealthy. But private equity investments are passively run and are typically only open to the wealthiest individuals and families. These private investments have delivered returns to their owners higher than the typical mix of assets held by middle-income households. Private equity investments are 12 percent of the assets of the wealthiest 0.1 percent of households in the most recent Fed survey.

For households above the median but below the 90th percentile, the most prevalent assets are housing and stocks, but the value of housing equity has grown more slowly than that of business equity. About three-fourths of households in this group have stock holdings, mostly through retirement accounts. Although ownership of publicly traded companies has become more widespread across the income spectrum as 401(k) plans have become common over the past few decades, stock ownership by value remains highly concentrated among the wealthiest households. The group of households in the 50th through the 90th percentiles of wealth hold only 17 percent of all public stocks by value, underscoring how much wealth is concentrated.8

Finally, on net, households in the bottom half of the wealth distribution hold just over 2 percent of all wealth, an average of $52,000. About 40 percent of them have equity in homes, and nearly 40 percent own business equity, either through a retirement account or as their own business. But the values are low compared with the upper half of households.

The Evolution of Inequality By many estimates, today's inequality levels are among the highest in the past 100 years.9 But wealth and income inequality in America have changed significantly over our history, widening and, at times, also narrowing, driven by a variety of factors, including booms and busts in financial assets, structural changes in the economy, and changes in tax and regulatory policy. In the Gilded Age, roughly 1870 to 1910, incomes rose strongly for most people, but it was also the era when large fortunes were accumulated by industrialists and their families. With no income tax or estate tax for the wealthiest and limited public education for everyone, the gap between those at the top and most others widened.10 But over the subsequent decades, especially during the New Deal, legal and institutional change strengthened worker power, and the introduction and broadening of progressive income and estate taxes helped limit the concentration of income and wealth.

Inequality narrowed in the decades after World War II, an era of fast economic expansion that benefited many households. There were improvements in public education, including the GI Bill, income tax changes that made rates more progressive, and growing unionization that raised wages for workers.11

Beginning in the late 1970s, however, wealth and income inequality began to increase again. This was a period of slower economic growth and sometimes high inflation. Top income tax rates declined, and fewer households were required to pay the estate tax. As in the 1910s and 1920s, business equity grew as a share of total assets, helping the wealthiest households become wealthier.12 The wealth generated from the typical middle-class asset—housing—increased but at a slower pace than business assets, exacerbated by the decline in housing wealth during the Global Financial Crisis. Over the same period, real wages grew slowly. Moreover, minimum wage laws failed to keep up with inflation and the growth of the economy.13

The lesson from this history is that the level of inequality in American society is not immutable—it changes over time. These historical patterns suggest that policy choices play a crucial role in shaping inequality levels. Economic growth, technological change, education, and globalization also play key roles.14

The Evolution of the Labor and Capital Shares of National Income Some of these trends are most clearly seen in the decline in the share of national income going to labor over the past 25 years. Though individuals and families across the spectrum hold business equity from which they receive income, the main source of income for most households is wages and salaries—labor earnings. Since lower- and middle-income households depend heavily on wages, another useful way of exploring income and wealth inequality is to consider how the share of national income earned from labor has changed over time, compared with income earned from capital—dividends, interest, and private business earnings.

After World War II, the labor share of national income was fairly steady between 60 percent and 65 percent, but it began falling in fits and starts beginning in 2001. The decline accelerated after the pandemic and has been especially steep in the past year, reaching a record low of 52.8 percent in the second quarter of 2026.15 Some of this reflects measurement issues associated with how income has been allocated to labor and capital over time.16 But, even after adjusting for those factors, there is a clear downward trend.

Economic research suggests three causes of the decades-long trend in labor versus capital income, each highly relevant to the potential effects of AI on inequality. The first is technological innovations that have reduced demand for labor and decreased wages; the second is the concentration of market power in many industries with a small number of firms; and the third related cause is the reduction in the bargaining power of workers.

Technology replacing labor has been going on for centuries, but new technology can also augment the productivity of existing jobs and create new jobs, including those that are hard to envision when the technology is initially adopted, a point I have noted in a number of speeches.17 The internet and the businesses it created reduced employment in some occupations—such as travel agents—and eliminated others: Think video store workers. But the development of new technologies has expanded jobs in other areas. Consider that there are millions of full-time social media creators earning a living today in the United States, something unimaginable a decade ago.18

What matters for the focus of today's discussion is how returns to labor compare with those to capital from the adoption of new technology. The available evidence from across the globe suggests that advances in digital technology have lowered the price of investment in technology relative to labor. 19 If capital is cheaper relative to labor, firms use relatively more of it. Capital can substitute for labor, too—for example, through the adoption of automation and robots. 20 Some evidence shows that firms that adopt robots may also become more productive and expand their labor force. But in this expansion, labor is outpaced by the expansion in capital, seen in rising profits and equity appreciation, which widens inequality.21 It will be important to watch these developments closely given the immense capital investment going into the AI sector.

Another factor driving the decline in the labor share of national income is market concentration, which researchers estimate has increased significantly in three-quarters of U.S. industries since 2000. Since that time, wages have grown at a slower rate than labor productivity.22 Since larger firms are often more productive, these new technologies, in turn, can contribute to market consolidation, with so-called "superstar" firms as the result.23 Superst…