Abstract
This paper offers a two-pronged critique of the empirical investigation of the income distribution performed by physicists over the past decade. Their finding rely on the graphical analysis of the observed distribution of normalized incomes. Two central observations lead to the conclusion that the majority of incomes are exponentially distributed, but neither each individual piece of evidence nor their concurrent observation robustly proves that the thermal and superthermal mixture fits the observed distribution of incomes better than reasonable alternatives. A formal analysis using popular measures of fit shows that while an exponential distribution with a power-law tail provides a better fit of the IRS income data than the log-normal distribution (often assumed by economists), the thermal and superthermal mixture’s fit can be improved upon further by adding a log-normal component. The economic implications of the thermal and superthermal distribution of incomes, and the expanded mixture are explored in the paper.
Similar content being viewed by others
References
A.A. Drǎgulescu, V.M. Yakovenko, Eur. Phys. J. B 20, 585 (2001)
A.A. Drǎgulescu, V.M. Yakovenko, Physica A 299, 213 (2001)
A.C. Silva, V.M. Yakovenko, Europhys. Lett. 69, 304 (2005)
A. Chatterjee, S. Sinha, B.K. Chakrabarti, Current Sci. 92, 1383 (2007)
V.M. Yakovenko,Statistical Mechanics Approach to Econophysics,in Encyclopedia of Complexity and System Science, edited by R.A. Meyers (Springer, 2009)
V.M. Yakovenko, J.B. Rosser Jr., Rev. Mod. Phys. 81, 1703 (2009)
H. Simon, Sociometry 20, 32 (1957)
A. Cho, Science 344, 828 (2014)
J.B. McDonald, Econometrica 52, 647 (1984)
A.A. Drǎgulescu, V.M. Yakovenko, Eur. Phys. J. B 17, 723 (2000)
C. Dagum, Econ. Appl. 30, 413 (1977)
S.N. Durlauf, Econ. J. 115, F225 (2005)
M. Gallegati, S. Keen, T. Lux, P. Ormerod, Physica A 370, 1 (2006)
J.L. McCauley, Physica A 371, 601 (2006)
E.T. Jaynes, Phys. Rev. 106, 620 (1957)
J. Sutton, J. Econ. Literature 35, 40 (1997)
M. Kalecki, Econometrica 13, 161 (1945)
V. Pareto, Le Cours d’Économie Politique (Macmillan, 1897)
H.A. Lydall, Econometrica 27, 110 (1959)
D.K. Foley, J. Econ. Theory 62, 321 (1994)
D.K. Foley, Metroeconomica 47, 125 (1996)
A. Shaikh, N. Papanikolaou, N. Wiener, Physica A 415, 54 (2014)
M. Weitzman, Quart. J. Econ. 104, 121 (1989)
R. Rogerson, R. Shimer, R. Wright, J. Econ. Literature 43, 959 (2005)
X. Wu, J. Econ. 115, 347 (2003)
A. Banerjee, V.M. Yakovenko, New J. Phys. 12, 075032 (2010)
D. Fiaschi, M. Marsili, J. Econ. Behavior Organization 81, 243 (2012)
K.M. Bloomquist, M. Tsvetovat,Pareto Distribution of US Wage and Salary Income,in Conference Proceedings (ESHIA/WEHIA, 2007)
E. Soofi, N. Ebrahimi, M. Habibullah, J. Am. Statist. Assoc. 90, 657 (1995)
M. Reich, D.M. Gordon, R.C. Edwards, Quart. J. Econ. 63, 359 (1973)
H. Yuqing, Physica A 377, 230 (2007)
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Schneider, M.P.A. Revisiting the thermal and superthermal two-class distribution of incomes. Eur. Phys. J. B 88, 5 (2015). https://doi.org/10.1140/epjb/e2014-50501-x
Received:
Revised:
Published:
DOI: https://doi.org/10.1140/epjb/e2014-50501-x