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The Global Upward Trend in the Profit Share

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  • Luci Ellis
  • Kathryn Smith

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.

Suggested Citation

  • Luci Ellis & Kathryn Smith, 2010. "The Global Upward Trend in the Profit Share," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 56(3), pages 231-256.
    • Handle: RePEc:aeq:aeqaeq:v56_y2010_i2_q2_p231-256
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    More about this item

    Keywords

    profit share; wage share; technological progress; regulation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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