##ber macroeconomics annual 2018, vol. 33, national bureau of economic research, pp. 167 – 228. 4 cavalleri, m. c., eliet, a., mcadam, p., petroulakis, f., soares, a. and vansteenkiste, i. ( 2019 ), “ concentration, market power and dynamism in the euro area ”, working paper series, no 2253, ecb, frankfurt am main, march. 5 chen, p., karabarbounis, l. and neiman, b. ( 2017 ), “ the global rise of corporate saving ”, journal of monetary 2 / 3 bis central bankers'speeches economics, vol. 89, pp. 1 - 19. 6 gopinath, g., kalemli - ozcan, s., karabarbounis, l. and villegas - sanchez, c. ( 2017 ), “ capital allocation and productivity in south europe ”, quarterly journal of economics, vol. 132, no 4, pp. 1915 – 1967. 3 / 3 bis central bankers'speeches

root causes of these trends. this is important not only for understanding the consequences in terms of subdued productivity and falling economic dynamism, but also for designing effective policies to govern them. there is, however, a lack of consensus on the causes underlying these economic developments. at least three conjectures have been put forward. the first and most popular one is that the labour share is declining and the remuneration to capital remains subdued because, owing to the increasing market power of firms, a larger share of income goes to profits or markups. the second, more benign conjecture is that the factorless income share is actually remunerating – rising, but unmeasured – investment flows, which may include intangible assets and organisational capital. the third possibility is that variation in the factorless income share is attributable to the differences between the true rental cost of capital, which firms pay when making production and investment decisions, and the standard estimates of this cost, such as those based on the return on risk - free bonds. but how relevant are these explanations? which explanation is the most important empirically? 1 / 3 bis central bankers'speeches in what is perhaps one of the most enlightening studies on the causes of the declining labour share3, loukas and his co - author present a unified empirical exploration of these three explanations through the lens of the long - term path of the economy. using us data, they find that the decline in labour income shares and the low capital remuneration do not reflect an increase in profits, and that declining competition or increasing market power are inconsistent with the data on labour income. this finding is important, as declining competition had been the most popular explanation until their paper was released. recent research conducted at the ecb4 reaches the same conclusion for europe. the authors find that in europe mark - ups have decreased if anything and market concentration has been stable over the last decade. therefore, increasing market power cannot be the reason behind the decline in the labour share in europe. loukas and his co - author also find the second explanation difficult to reconcile with the data, as investment spending on unmeasured capital would need to be implausibly large to account for factorless income. it is the third potential explanation that turns out to be the most promising. even if further research is needed to understand why simple measures of the rental cost of capital deviate from the rental cost that firms internalise when making their investment decisions,