Series: Working Papers. 1833.
Author: Vicente Salas, Lucio San Juan and Javier Vallés.
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Abstract
This paper presents evidence of how the shares of labour and capital costs and profits in the
gross value added of corporate sectors of France, Germany, Italy, Spain and the US varied
between 1995 and 2016, and seeks to explain the differences between countries and how
they have developed over time. The descriptive evidence does not support the hypothesis
of a convergence in the composition of the countries’ corporate gross value added in the
period, either within the euro area or between Europe and the US, nor is there evidence of
a generalised downward trend in the share of labour costs over time. The parallel upward
trend in the corporate profit share of the US and Germany between 2000 and 2016 stands
out, with German corporate profit share consistently above that of the US. The evidence
presented here supports the claim made by other studies that increasing corporate market
power is the main driver of changes in the composition of gross value added over time in
the case of the US. In the euro area countries, labour and capital shares are also sensitive to
changes in the relative input prices of labour and capital (consistent with an inferred elasticity
of substitution between labour and capital in production that is less than one, compared
with the inferred value of one for the US). Finally, to explain the high and increasing German
corporate profit share, it is necessary to account for the sustained comparative production
cost advantage of German corporations.