Will AI Lead to a Productivity Boom AND an Economic and Market Crash? (Feb 27, 2026) | Carson Group

Excerpt:

Productivity growth is essentially the sum of “real” or inflation-adjusted wage growth and margin expansion. In other words, companies can pass through productivity gains to workers (in the form of higher wages) or they can take it all and boost profit margins (which will reduce worker’s share of total income). Expanding margins will also show up as inflation and drive real wages lower (since real wage growth is nominal wage growth minus inflation).

Historically, we’ve seen a combination here in the US. The table below shows the math using historical macroeconomic data. During periods of above-trend productivity growth (1996-2004 and 2023-2024), real wages also rose faster than in other periods. In other words, firms didn’t eat up all that productivity growth with margin expansion. A big chunk of that productivity growth passed on to workers too. These were periods of tight labor markets, and strong income growth in turn translated to a positive feedback loop of strong demand and strong profit growth.

Interestingly the one period when productivity ran quite strong (> 2%) but real wage growth was poor was the first three quarters of 2025. Almost all the productivity growth went toward boosting margins. This was also a period in which the labor market cooled, though because of economic uncertainty amid the tariff chaos, and inflation also picked up (also partly because of tariffs). At the same time, this is just three quarters of data and short-term data can be noisy (and subject to big revisions).