The Global Rise of Corporate Saving
Falling labor shares and rising corporate profits have translated into higher corporate saving and turned the corporate sector from a net borrower to a net saver, while household saving has declined.
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. In The Global Rise of Corporate Saving (NBER Working Paper No. 23133), Peter Chen, Loukas Karabarbounis, and Brent Neiman analyze this trend and document a parallel decline in household saving.
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Corporate saving equals profits less dividend payments to shareholders; it is sometimes referred to as "retained earnings." Corporations can deploy their saving by investing in physical and intangible capital, accumulating cash reserves, repaying debt, or buying back shares. In the last two decades much of corporate net lending was used to accumulate cash. The use of net lending for share buybacks slowed after the financial crisis of 2008.
The researchers find no evidence that a decline in manufacturing, changes in the market power of specific firms or industries, or alterations in a particular country's financial practices were key drivers of the rise in corporate saving. They suggest that a number of changes in the global economy during the last three decades, notably falling real interest rates, declining prices for capital goods, and reductions in corporate taxes, could contribute to rising corporate profits and declining labor income. Rising markups on products sold by the corporate sector could have the same effect.
— Linda Gorman
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