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The Global Upward Trend in the Profit Share
Applied Economics Quarterly, Vol. 56 (2010), Iss. 3 : pp. 231–255
13 Citations (CrossRef)
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1Head of Financial Stability Department, Reserve Bank of Australia, Sydney, Australia.
2Department of Climate Change and Energy Efficiency, Canberra, Australia.
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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.
JEL Classification: E25, L51