970926 Blanchard Profit shares and profit rates for the major OECD countries, which had decreased in the 1970s, have steadily increased since, often by a substantial amount. The average profit share for the OECD-Europe has increased from a low of 30.5% in 1981 to a high of 38.1% in 1995. The average profit rate (the profit share multiplied by the capital output ratio) for OECD-Europe has increased from a low of 11.0% in 1981 to a high of 14.9% in 1995. The U.S. rate has gone from a low of 12.3% in 1982 to a high of 19.5% in 1995. Much of the increase in the profit rate in the OECD countries seems to be explained by the decline in inflation. The data strongly suggest that the lower the inflation rate, the higher the profit rate, controlling for the capital-labor ratio. This project examines alternative explanations of this striking statistical relationship between the profit rate and inflation and it draws out the implications of these changes in income distribution on economic activity, from investment to unemployment. The project also examines a number of explanations of the dynamics of natural unemployment rates including firing restrictions, the loss of skills and work habits of the long-term unemployed, immigration, and family insurance of unemployed.
