The global upward trend in the profit share
Profits growth has been strong in many developed economies in recent years, and the profit share - the share of factor income going to capital – has been high compared with historical experience. This paper shows that, rather than being a recent phenomenon, profit shares have trended upwards since about the mid 1980s in most developed economies for which comparable data are available. There are a number of possible explanations for this, but not all of them are consistent with a global trend over two decades, nor do they fit cross-country differences in the trend in the profit share. The preferred explanation advanced in this paper is that ongoing technological progress has increased the rate of obsolescence of capital goods. This induces a greater rate of churn in both capital and jobs, which puts firms in a stronger bargaining position relative to a labour force that now faces more frequent job losses on average. Firms can therefore reap a larger fraction of the economic surplus created by market frictions, which raises the measured profit share. This effect is stronger where labour market institutions are more rigid, consistent with the cross-country pattern in the trends in the profit share. There is also a positive relationship between the size of the trend in the profit share, and the extent of product market regulation. This suggests a role for competition and innovation in driving down high profit margins. These explanations appear to fit the data better than alternatives raised in the literature.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (41) 61 - 280 80 80
Fax: (41) 61 - 280 91 00
Web page: http://www.bis.org/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Cadiou, Loı̈c & Dées, Stéphane & Laffargue, Jean-Pierre, 2003. "A computational general equilibrium model with vintage capital," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 1961-1991.
- Benoit Dostie & Mathieu Trépanier, 2004.
"Return to Computer Use and Organizational Practices of the firm,"
Cahiers de recherche
04-06, HEC Montréal, Institut d'économie appliquée.
- 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).
- 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.
- 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.
- Caroli, Eve & Van Reenen, John, 1999.
"Skill biased organizational change? Evidence from a panel of British and French establishments,"
CEPREMAP Working Papers (Couverture Orange)
- 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.
- Van Reenen, John & Caroli, Eve, 2001. "Skill-Biased Organizational Change? Evidence from a panel of British and French establishments," Economics Papers from University Paris Dauphine 123456789/10093, Paris Dauphine University.
- Douglas Gollin, 2001.
"Getting Income Shares Right,"
Department of Economics Working Papers
2001-11, Department of Economics, Williams College.
- 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.
When requesting a correction, please mention this item's handle: RePEc:bis:biswps:231. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Beslmeisl)
If references are entirely missing, you can add them using this form.