In the US, these statistics are recorded. It is very easy to say that corporate profits are increasing...because corporate profits are reported.
In the EU, these statistics aren't recorded so it is very hard to say whether this is correct or why. This paper is built from the very top-level of stats, I don't see any problem with the theory (decomposing the GDP deflator into components) but the lack of granularity with the data is problematic imo, particularly when you are looking at explanations.
In particular, as the paper acknowledges, previous periods showed that firms increased their profit share because they expected future wage increases. This is one of the problems with the data in that there is lags and leads, granular data allows you to more precise about why this is happening.
Also, equating the GDP deflator with actual profitability seems extremely unsound to me. In aggregate, fine. But the paper is talking about profit share not actual profitability. So profits can actually fall, and this method can show they are increasing...that is possible.
Either way, this paper isn't particularly useful and, as the authors well know, everyone will read what they want into this. It is known that the EU has poor competition, it is known that wage growth is probably the most important component of inflation...there isn't really anything particularly new here.
In the EU, these statistics aren't recorded so it is very hard to say whether this is correct or why. This paper is built from the very top-level of stats, I don't see any problem with the theory (decomposing the GDP deflator into components) but the lack of granularity with the data is problematic imo, particularly when you are looking at explanations.
In particular, as the paper acknowledges, previous periods showed that firms increased their profit share because they expected future wage increases. This is one of the problems with the data in that there is lags and leads, granular data allows you to more precise about why this is happening.
Also, equating the GDP deflator with actual profitability seems extremely unsound to me. In aggregate, fine. But the paper is talking about profit share not actual profitability. So profits can actually fall, and this method can show they are increasing...that is possible.
Either way, this paper isn't particularly useful and, as the authors well know, everyone will read what they want into this. It is known that the EU has poor competition, it is known that wage growth is probably the most important component of inflation...there isn't really anything particularly new here.