This chart shows why AI will eventually mean lower bond yields

By Jules Rimmer Wage share and equilibrium interest rates have a close correlation over a long time period Engineers work at the robotics pilot testing and validation platform of Beijing Innovation Center of Humanoid Robotics (X-Humanoid) in Beijing on March 20, 2026. Much has been written about how AI will displace employees in the workplace. (Photo by ADEK BERRY / AFP via Getty Images) The share of corporate profits going to employees rather than the companies themselves is falling. According to one well-known economist, there is a strong correlation between that "wage share" and interest rates, and, as bond yields are spiking to multiyear highs almost everywhere, this is a bullish and extremely welcome indicator for fixed-income markets. A close correlation between wage-share and interest-rate equilibrium suggests that short-term investor concerns about rising bond yields may be overdone. Dario Perkins, global macroeconomist at research consulting firm TS Lombard, defined wage share as the ratio of wage income to nominal GDP, effectively the inverse of profit share. If a company captures any efficiency or productivity gains through higher margins, it's at the expense of employees and can be interpreted as a "proxy for inequality," he wrote. "The lower the wage share, the greater the inequality." In a note for investors published Monday, Perkins said that the recent populist backlash against immigration should have strengthened employee wages, leading to higher salaries. But since the peak bargaining power they enjoyed in 2022, during major labor shortages, the trend has reversed. The vacancies-to-unemployment ratio has fallen dramatically in the last four years. Since the labor shortages of 2022, the vacancies-to-unemployment ratio has been in sharp decline Much has been written about how the widespread adoption of artificial intelligence will damage the earnings potential of workers. "If you believe Sam Altman and Co," Perkins wrote, "AI is going to decimate worker power, plunging the wage share to even lower depths." Perkins wrote that, yes, indeed, the incorporation of AI into business practices and models is contributing to falling wage share. However, the side that captures the AI productivity gains - employees or their employers - will matter most. In other words, will AI be a force that replaces labor, or augments it? Perkins looked back over the last 50 years or so and tracked the close relationship between wage share and equilibrium interest rate - the rate that balances the rate savers demand and the rate companies can pay to invest in their businesses. In the past few years, wage share has declined more sharply than the equilibrium interest rate. Given the historical correlation, it suggests either bond yields must fall or the wage share must rise. As the U.S. 30-year bond BX:TMUBMUSD30Y yield hit a 19-year high of 5.14% Monday morning, fixed-income investors may derive some comfort from that. -Jules Rimmer This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal. (END) Dow Jones Newswires 05-18-26 0859ET