[OPE-L] BIS paper: data on the global trend in the profit share 1960-2005 (19 countries)

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).


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