Stylized facts on the evolution of profit rates in the US: Evidence from firm-level data

This paper builds on the literature analyzing the aggregate profit rate to describe profitability across the distribution of firms in the post-1970 U.S. economy. While median profitability mirrors well-established aggregate patterns, including a falling rate of profit through the mid- 1980s and a recovery thereafter, it also masks a striking post-1980 widening of the distribution. In this paper, we document this widening of the profitability distribution, and identify factors driving changes in profit rates at each end of the distribution. At the top, we show that, while top-end operational profit rates (operational returns on tangible capital) soar after 1980, this rise disappears when accounting for financial and intangible assets. We show that firms with high operational profit rates hold large stocks of financial and intangible assets, relative to those with high total profitability, but that larger shares of these assets fail to translate into higher returns on all assets. Thus, once accounting for post-1980 changes in asset composition, growth in top profit rates disappears. At the bottom, profit rates of the least profitable quintile of U.S. nonfinancial corporations become systematically and increasingly negative after the early 1980s. We show that this decline reflects persistently negative average profitability in new post-1970 cohorts, rather than falling profitability within continuing firms.