Corporate economic profits in the euro area: The relevance of cost competitive advantage

Abstract

We estimate aggregate and industry cost and profit shares for the corporate sectors of France Germany, Italy and Spain, in the period 1995–2018, and compare them with estimates for US corporations. The results indicate an upward trend in economic profits in the United States and Germany since the year 2000 that it is not evident in other euro area countries. There is supporting evidence that, in the United States, the rising economic profits are the result of increasing corporate market power resulting from increasing market concentration across industries and over time. However, the research of this paper shows that in the case of Germany the rising profits of the corporate sector are better explained by its cost competitive advantage, both in terms of labour and capital unit costs, over the rest of the euro area's corporate sectors within the single market of the monetary union.