Profit share in Italy has been growing between the mid-1970s and the mid-1990s, remainingstable at historically high levels since than. After dropping in the first half of the 1070s,owing to an unprecedented rapid rise in wages, profit share started to recover. The rise duringthe 1980s involved the entire business sector and was part of this recovery process. Duringthe 1990s profit share continued to grow on average, but with large cross-sector differences.Profit share in manufacturing, which is more exposed to international competition, declined,together with the returns on capital stock, but increased in the rest of the business sector. Weshow that the better performance of the non-manufacturing business sector is mainly due tothe industries most affected by the large-scale privatisations and restructuring of State-ownedcompanies that began in the first half of the 1990s. They led to a rapid growth in total factorproductivity and a deceleration in wages, without a major impact on the market power ofprivatised companies, even those previously in the position of incumbent monopolists. Ourevidence for Italy thus strongly supports the hypothesis that profit share growth during the1990s, which was also observed in other countries, was mainly due to a redistribution of rentsrather than to biased technological change.
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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number
dp0671.
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