Date of Award

Spring 5-4-2024

Document Type


Degree Name

Bachelor of Science (BS)



First Advisor

Monica Das

Second Advisor

Marcio Santetti


The sharp increase in post-pandemic inflation coincided with a profit explosion characterized by a growing share of profit in output. This paper argues that the record profit share in the nonfinancial corporate sector entails a redistribution of income against real wages due to the current institutional and structural conditions of the U.S. economy. Using profit share as a proxy for markups, the results of this paper highlight the macroeconomic implications of excessive profitability in the face of a global exogenous shock. Chiefly, rising profit share correlates with accelerating CPI inflation from 2021-22. Moreover, this surge in profit share occurred when capacity utilization was much below pre-pandemic levels to be cyclical in nature. The paper shows that post-pandemic inflation is likely a transitory phenomenon due to the weakened position of labor in wage setting but could persevere in the face of future shocks. The results conclude that policy should take preventative measures to control inflation in a cost-push and profit-led scenario. I show that monetary policy may be exacerbating inflationary pressures as the burden of high interest rates are passed on in the form of diminished purchasing power. Thus, effective inflation targeting must acknowledge the role of institutional conditions that make predatory price-setting behavior conducive in times of overlapping emergencies. Even inducing a moderate recession and unemployment, which is the goal of contractionary monetary policy, can disenfranchise U.S. workers and harm social welfare. Examining the historical behavior of U.S. profit share using the post-Keynesian markup inflation theory, this paper shows that inflation is a distributional problem arising from the conflicting interests of profits and wages in output.

Creative Commons License

Creative Commons Attribution 4.0 International License
This work is licensed under a Creative Commons Attribution 4.0 International License.

Included in

Economics Commons