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Physics-inspired analysis of the two-class income distribution in the USA in 1983-2018

Author

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  • Victor Yakovenko

    (University of Maryland)

  • Danial Ludwig

    (University of Maryland)

Abstract

The first part of this paper is a brief survey of the approaches to economic inequality based on ideas from statistical physics and kinetic theory. These include the Boltzmann kinetic equation, the time-reversal symmetry, the ergodicity hypothesis, entropy maximization, and the Fokker-Planck equation. The origins of the exponential Boltzmann-Gibbs distribution and the Pareto power law are discussed in relation to additive and multiplicative stochastic processes. The second part of the paper analyzes income distribution data in the USA for the time period 1983-2018 using a two-class decomposition. We present overwhelming evidence that the lower class (more than 90% of the population) is described by the exponential distribution, whereas the upper class (about 4% of the population in 2018) by the power law. We show that the significant growth of inequality during this time period is due to the sharp increase in the upper-class income share, whereas relative inequality within the lower class remains constant. We speculate that the expansion of the upper-class population and income shares may be due to increasing digitization and non-locality of the economy in the last 40 years.

Suggested Citation

  • Victor Yakovenko & Danial Ludwig, 2023. "Physics-inspired analysis of the two-class income distribution in the USA in 1983-2018," Working Papers 651, ECINEQ, Society for the Study of Economic Inequality.
    • Handle: RePEc:inq:inqwps:ecineq2023-651
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    References listed on IDEAS

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    1. Stanley, H.E. & Afanasyev, V. & Amaral, L.A.N. & Buldyrev, S.V. & Goldberger, A.L. & Havlin, S. & Leschhorn, H. & Maass, P. & Mantegna, R.N. & Peng, C.-K. & Prince, P.A. & Salinger, M.A. & Stanley, M., 1996. "Anomalous fluctuations in the dynamics of complex systems: from DNA and physiology to econophysics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 224(1), pages 302-321.
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    1. Aktaev, Nurken E. & Bannova, K.A., 2022. "Mathematical modeling of probability distribution of money by means of potential formation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 595(C).

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    More about this item

    Keywords

    econophysics; economic inequality; Boltzmann–Gibbs distribution; Pareto power law; two-class society; stochastic processes;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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