From: Jurriaan Bendien (adsl675281@TISCALI.NL)
Date: Sat Aug 11 2007 - 20:20:51 EDT
The global upward trend in the profit share by Luci Ellis and Kathryn Smith Working Papers No 231 July 2007 Abstract: 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. http://www.bis.org/publ/work231.pdf (The authors say in note 4 that it would make sense to exclude the "surplus" attributable to the "imputed rental value of owner-occupied housing", but they lacked comparable data. They then suggest it wouldn't make much difference to the historical trendline. That's not quite true - in some countries at least, homeownership has strongly increased, which has the effect of raising their "surplus". For instance I previously estimated that in the USA, the imputed rental value was about 5.9% of GDP in 1960 and 9.8% in 2004. However this effect would be hardly visible in the graphs - JB).
This archive was generated by hypermail 2.1.5 : Fri Aug 31 2007 - 00:00:10 EDT