Decline in the US profit rate: a sectoral analysis

The profit rate is a key element in the cyclical growth of economies becaus e of its effect on investment and saving behaviour and, therefore, on capac ity, productivity and competitiveness. The US industry profit rates have de clined dramatically since the 1950s. This decline is analysed and the facto rs that explain it are determined. It is found that sectoral factor product ivities and real factor prices account for most of this decline. The real w age has a stronger effect on manufacturing profit rates, while the real cap ital price explains better profitability in nonmanufacturing industries. A rise in both factor prices reduces the profit rates during the 1960s and th e 1970s. After 1980, a fall in the real price of capital with a sustained i mprovement in technology account for the stabilization of the declining tre nds 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.