Operating profit margins at U.S. public companies grew more than 2 percent annually from 2019 to 2025, climbing from 16 percent of sales to 18 percent, according to a new analysis published October 15 by the Federal Reserve Bank of New York. The report, authored by research economist Jeremy Pearce, examines how recent productivity gains flowed to corporate profits rather than workers, consistent with the ongoing decline in labor's share of output. After more than a decade of disappointing growth, productivity finally accelerated—but the returns haven't been evenly split.
Nonfarm-business output per hour expanded just 1.0 percent yearly from 2010 to 2019, then jumped to 2.2 percent annually from 2019 to 2025. Real revenue per worker among Compustat firms—sales adjusted for industry output prices and divided by employment—showed a parallel shift, rising from 0.7 percent yearly in the 2010s to 2.2 percent in the recent period. Gross margins increased from roughly 34 percent of sales in 2019 to 37 percent in 2025, representing 1.3 percent annual growth. Through the 2010s, margins had been nearly stagnant: gross margins grew about 0.4 percent per year from 2010 to 2019, while operating margins stayed essentially flat.
The report finds that companies entering 2019 with higher research and development spending relative to sales experienced larger subsequent gains in profit margins. Firms with 10 percent more R&D expenditure relative to sales in 2019 saw roughly 0.7 percent higher operating-markup growth over 2019–2025, and 0.5 percent over 2022–2025. By contrast, firms with higher capital intensity didn't show such a clear pattern. The analysis, which studied U.S. Compustat firms across manufacturing and services while excluding agriculture, utilities, finance, real estate, and public administration, suggests that returns to intangible investments—not physical capital—drove margin expansion.
The shift matters because it reveals who benefited from the productivity rebound. When revenue per worker climbs, the additional money can flow to employees through higher wages as companies compete for talent, or it can accumulate in corporate profit margins. The data shows the latter happened: margins widened while labor's share of output continued its long decline. The pattern points to a potentially important role for technology and intangible investments in driving markups, especially among high-tech firms and companies that invested heavily in intangibles since COVID. R&D intensity emerged as a key predictor of which firms captured the largest margin gains, consistent with the rising returns to firms focused on innovation and intellectual property.
The report flags one critical question for future research: whether these rising margins represent genuine returns to significant intangible investment, or simply a windfall for firms. Measured productivity ended more than a decade of sluggish growth, but the gains surfaced primarily as wider profit margins rather than wage increases. For workers, the productivity acceleration hasn't yet translated into a larger slice of the pie.