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The Global Upward Trend in the Profit Share

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  • Luci Ellis
  • Kathryn Smith

Abstract

The profit share—the share of factor income going to capital—has trended upwards since about the mid 1980s in most developed economies. Not all of the possible explanations for this are consistent with the timing or the cross-country pattern of the data. Our preferred explanation is that technological progress has increased the rate of obsolescence of capital goods. This induces faster churn in both capital and jobs, which endogenously puts firms in a stronger bargaining position. The effect is larger where there is stronger labour and product market regulation.

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Bibliographic Info

Article provided by Duncker & Humblot, Berlin in its journal Applied Economics Quarterly.

Volume (Year): 56 (2010)
Issue (Month): 3 ()
Pages: 231-256

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Handle: RePEc:aeq:aeqaeq:v56_y2010_i2_q2_p231-256

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Keywords: profit share; wage share; technological progress; regulation;

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  1. Eve Caroli & John Van Reenen, 2001. "Skill-Biased Organizational Change? Evidence From A Panel Of British And French Establishments," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1449-1492, November.
  2. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
  3. Dostie, Benoit & Trépanier, Mathieu, 2005. "Returns to Computer Use and Organizational Practices of the Firm," IZA Discussion Papers 1541, Institute for the Study of Labor (IZA).
  4. Paul Conway & Giuseppe Nicoletti, 2006. "Product Market Regulation in the Non-Manufacturing Sectors of OECD Countries: Measurement and Highlights," OECD Economics Department Working Papers 530, OECD Publishing.
  5. Lynn Elaine Browne & Rebecca Hellerstein, 1997. "Are we investing too little?," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 29-50.
  6. Cadiou, Loic & Dees, Stephane & Laffargue, Jean-Pierre, 2003. "A computational general equilibrium model with vintage capital," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 1961-1991, September.
  7. Giuseppe Nicoletti & Stefano Scarpetta & Olivier Boylaud, 2000. "Summary Indicators of Product Market Regulation with an Extension to Employment Protection Legislation," OECD Economics Department Working Papers 226, OECD Publishing.
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