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Evolutionary model of the personal income distribution

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  • Kaldasch, Joachim

Abstract

The aim of this work is to develop a qualitative picture of the personal income distribution. Treating an economy as a self-organized system the key idea of the model is that the income distribution contains competitive and non-competitive contributions. The presented model distinguishes between three main income classes. 1. Capital income from private firms is shown to be the result of an evolutionary competition between products. A direct consequence of this competition is Gibrat’s law suggesting a lognormal income distribution for small private firms. Taking into account an additional preferential attachment mechanism for large private firms the income distribution is supplemented by a power law (Pareto) tail. 2. Due to the division of labor a diversified labor market is seen as a non-competitive market. In this case wage income exhibits an exponential distribution. 3. Also included is income from a social insurance system. It can be approximated by a Gaussian peak. A consequence of this theory is that for short time intervals a fixed ratio of total labor (total capital) to net income exists (Cobb–Douglas relation). A comparison with empirical high resolution income data confirms this pattern of the total income distribution. The theory suggests that competition is the ultimate origin of the uneven income distribution.

Suggested Citation

  • Kaldasch, Joachim, 2012. "Evolutionary model of the personal income distribution," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 391(22), pages 5628-5642.
  • Handle: RePEc:eee:phsmap:v:391:y:2012:i:22:p:5628-5642
    DOI: 10.1016/j.physa.2012.06.048
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    More about this item

    Keywords

    Income distribution; Labor income; Capital income; Gibrat’s law; Power law distribution; Exponential distribution; Evolutionary economics; Self-organization; Competition;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • E11 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Marxian; Sraffian; Kaleckian

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