The split of corporate value added between labor and capital income is an issue that is attracting great attention at the moment, in a context of tensions on purchasing power due to inflation and record amounts of dividends paid to company shareholders CAC 40. In early November, the Minister of Economy and Finance, Bruno Le Maire, thus announced his intention to organize a conference on the subject within the majority party.
But how to measure this sharing, and what has been its evolution over time? How does it compare to that of other countries? That’s what addressed our latest research focusing on companies outside the financial sector, full details and charts of which can be found here.
Over 80% for employees
The wealth production of these companies is measured by value added. What can be shared is the net added value: this is the gross added value, i.e. the difference between what a company has produced, in euros, and its purchases of goods and services, from which the amortization of capital is deducted physicist.
In France, excluding the financial sector, this net added value was distributed in 2021 among employees for 82.56%, shareholders for 8.03%, public administrations for 6.31% and other beneficiaries for 3.11%. The share reserved for shareholders was allocated in the form of dividends for 5% and saved profits for 3%.
In reality, after the steep decline recorded from 1982 to 1987, employee compensation has tended to increase from 1988 to 2021 as a percentage of net value added. It reached 82.56% in 2021, from 75.02% in 1988. In the first half of 2022 it decreased slightly to stand at 81.81%.
As a percentage of net value added, the net profit distributed or saved by national manufacturing activities fluctuates around a constant average since 1988, but with a wide dispersion. It fell from 1988 to 2012, from an initial performance of 9.2% to 2.6%. It then rose to 8% in 2021 before falling to 6.34% in the first half of 2022.
This increase in the profit share from 2012 to 2021 was therefore achieved without this at the expense of the wage increase. The wage share, as a percentage of net value added, also increased slightly during this period.
The increase in the profit share was made possible primarily by the decrease in net interest, net rent and other net payments to third parties, which fell from 6% to 3.1%. It was also favored by the reduction in the share of taxes on production net of subsidies and on profits, respectively from 9.1% to 6.3%. The decrease in the profit share in the first half of 2022 is related to the increase in that of taxes as well as interest and net rents.
The distribution of companies’ net value added is therefore particularly favorable to workers in France. Indeed, the wage share, as a percentage of net value added, is higher in France than in all other European Union (EU) countries, except Slovenia.
The corollary is that the sharing of the added value of the companies generated in France clearly appears to be against the shareholders. The share of net profits distributed or saved by companies located in France, excluding the financial sector, remains lower than in all other EU countries, except Cyprus.
In this part of the net added value that is attributed to shareholders, in the form of net dividends or reserved profits, it is naturally the net dividends (those paid less those received by subsidiaries) that constitute a distribution deducted from the net value added generated by the business activities in France.
Our research shows in this regard that even these net dividends paid by companies located in France remain lower than those of their competitors located in most other EU countries. The large dividends paid in 2021 by large French companies, whose listed shares are included in the CAC 40 index, therefore often generate confusion: it is not a question of a levy on the added value generated in France by these companies to the detriment of French employees, on the contrary according to some erroneous interpretations.
In reality, a large part of these dividends paid by French multinationals are a simple redistribution to their shareholders of the dividends they have received from their subsidiaries located abroad, and which therefore come from sharing the added value in these other countries. The dividends of these multinationals are therefore largely independent of the sharing of the added value generated by their activities located in France.
OfDirector of Economic Studies, IÉSEG School of Management
The original version of this article was published in The Conversation.