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Thermodynamics of inequalities: From precariousness to economic stratification

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  • Smerlak, Matteo

Abstract

Growing economic inequalities are observed in several countries throughout the world. Following Pareto, the power-law structure of these inequalities has been the subject of much theoretical and empirical work. But their nonequilibrium dynamics, e.g. after a policy change, remains incompletely understood. Here we introduce a thermodynamical theory of inequalities based on the analogy between economic stratification and statistical entropy. Within this framework we identify the combination of upward mobility with precariousness as a fundamental driver of inequality. We formalize this statement by a “second-law” inequality displaying upward mobility and precariousness as thermodynamic conjugate variables. We estimate the time scale for the “relaxation” of the wealth distribution after a sudden change of the after-tax return on capital. Our method can be generalized to gain insight into the dynamics of inequalities in any Markovian model of socioeconomic interactions.

Suggested Citation

  • Smerlak, Matteo, 2016. "Thermodynamics of inequalities: From precariousness to economic stratification," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 441(C), pages 40-50.
    • Handle: RePEc:eee:phsmap:v:441:y:2016:i:c:p:40-50
    DOI: 10.1016/j.physa.2015.09.001
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