Rising Profits At A Global Level Has Turned The Corporate Sector From A Net Borrower To A Net Saver

“Since 1980, the global corporate sector has increased its saving rate and switched from being a net borrower to being a net lender to the rest of the economy. This change has occurred in most industries and in a majority of countries.” (Peter Chen, Loukas Karabarbounis and Brent Neiman, The NBER Digest, May 2017)

At a global level, corporate savings has been increasing as a percentage of GDP while household savings has been shrinking.

Quite obviously, the increase in the corporate share of GDP has coincided with a decline in labour compensation as a percent of GDP.

The second chart indicates that the increase in corporate savings ratio has occurred in many countries. Indeed, all 10 of the world’s largest economies (the shaded bars in the figure), have seen increases in their corporate saving rate.

Obviously, as the corporate saving rate increases, the share contributed by other components of GDP must decrease. In this case, there has been a steady decline in the labour share of the economy.