In a 2016 paper, “Declining Labor and Capital Shares,” Simcha Barkai, a professor of finance at the London School of Business, found that the decline in labor share produced a big winner, the profit share, which rose from 2 percent of gross domestic product in 1984 to 16 percent in 2014. Barkai writes:

To offer a sense of magnitude, the combined shares of labor and capital decline 13.9 percentage points, which amounts to $1.2 trillion in 2014. Estimated profits in 2014 were approximately 15.7 percent, which is equal to $1.35 trillion or $17,000 for each of the approximately 80 million employees in the corporate nonfinancial sector.

In other words, shareholders and business owners amassed profits amounting to $1.35 trillion or $17,000 per employee as a result of the increase in profit share.

Barkai contends that market concentration is a major factor in the decline of labor share: “Results show that the decline in the labor share is strongly associated with an increase in concentration.”

Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago, wrote that the sharp increase in profits reflects Warren Buffett’s investment dictum: “I look for economic castles protected by unbreachable ‘moats’ ” — profits have risen “because firms became better at creating product differentiation and erecting barriers to entry.”

What does all this mean? I asked Daron Acemoglu, a professor of economics at M.I.T., and he emailed me back:

Both the decline in the labor share and stagnating median wages are a consequence of the fact that three things are happening: 1. Production is becoming more capital intensive (automation is part of it). 2. Some jobs are being offshored, so no more employment and wages in these jobs in the US, but companies doing the offshoring are still performing less labor-intensive parts of production and getting profits. 3. A general increase in profits.

Acemoglu notes that the third point should be considered separately because

without any change in production techniques and organization of production, the labor share may decline and wages may stagnate because firms that have greater market power (think Apple, think Google, think Microsoft) make a lot more (a lot a lot a lot more) profits.

Autor pointed out that the shift in the share of G.D.P. from labor to profits

affects inequality in that payments to capital and profits are much more unequally distributed than payment to wages. So if a larger fraction of G.D.P. is being paid to owners of capital and to claimants on profits (shareholders, owners of privately held corporations) and less in wages and salaries, this implies a rise in income inequality between typical households — which live on wage/salary income — and wealthier households that often have these other assets and instruments.

This bleak tale does not end here, as new pieces of evidence accumulate.

Dominique Guellec and Caroline Paunov, senior economists at the Organization for Economic Cooperation and Development, argued in a 2017 paper, “Digital Innovation and the Distribution of Income,” that without government intervention, increased inequality is virtually inevitable:

The growing importance of digital innovation — new products and processes based on software code and data — has increased market rents, which benefit disproportionately the top income groups. In line with Schumpeter’s vision, digital innovation gives rise to ‘winner-take-all’ market structures, characterized by higher market power and risk than was the case in the previous economy of tangible products.

Increased profits, in turn, “accrue mainly to investors and top managers and less to the average workers, hence increasing income inequality.”