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Revisiting the thermal and superthermal two-class distribution of incomes

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  • Markus Schneider

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. Copyright EDP Sciences, SIF, Springer-Verlag Berlin Heidelberg 2015

Suggested Citation

  • Markus Schneider, 2015. "Revisiting the thermal and superthermal two-class distribution of incomes," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 88(1), pages 1-10, January.
  • Handle: RePEc:spr:eurphb:v:88:y:2015:i:1:p:1-10:10.1140/epjb/e2014-50501-x
    DOI: 10.1140/epjb/e2014-50501-x
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    Citations

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    Cited by:

    1. Ellis Scharfenaker, Markus P.A. Schneider, 2019. "Labor Market Segmentation and the Distribution of Income: New Evidence from Internal Census Bureau Data," Working Paper Series, Department of Economics, University of Utah 2019_08, University of Utah, Department of Economics.
    2. Weber, Jan David & Scharfenaker, Ellis, 2024. "Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction," Economics Letters, Elsevier, vol. 234(C).
    3. Ellis Scharfenaker & Gregor Semieniuk, 2017. "A Statistical Equilibrium Approach to the Distribution of Profit Rates," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 465-499, July.
    4. Kumar, Rishabh, 2021. "Personal income inequality in USA from a two-class perspective: 2004-2018," SocArXiv fmkj3, Center for Open Science.
    5. Soriano-Hernández, P. & del Castillo-Mussot, M. & Córdoba-Rodríguez, O. & Mansilla-Corona, R., 2017. "Non-stationary individual and household income of poor, rich and middle classes in Mexico," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 465(C), pages 403-413.
    6. Jangho Yang, 2018. "Information Theoretic Approaches In Economics," Journal of Economic Surveys, Wiley Blackwell, vol. 32(3), pages 940-960, July.

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    Keywords

    Statistical and Nonlinear Physics;

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