Decline in the US profit rate: a sectoral analysis
The profit rate is a key element in the cyclical growth of economies because of its effect on investment and saving behaviour and, therefore, on capacity, productivity and competitiveness. The US industry profit rates have declined dramatically since the 1950s. This decline is analysed and the factors that explain it are determined. It is found that sectoral factor productivities and real factor prices account for most of this decline. The real wage has a stronger effect on manufacturing profit rates, while the real capital price explains better profitability in nonmanufacturing industries. A rise in both factor prices reduces the profit rates during the 1960s and the 1970s. After 1980, a fall in the real price of capital with a sustained improvement in technology account for the stabilization of the declining trends in sectoral profit rates. Breaking with the trends in other industries, technology accounts for most of the decline in the finance, insurance and real estate sector throughout the sample.