The double power law in income distribution: Explanations and evidence

Alexis Akira Toda

Journal of Economic Behavior & Organization, 2012, vol. 84, issue 1, 364-381

Abstract: Conditional on education and experience, the distribution of personal labor income appears to be double Pareto, a distribution that obeys the power law in both the upper and lower tails. In particular, the error term of the classical Mincer equation appears to be Laplace, or double exponential. This “double power law” is not rejected by goodness-of-fit tests. I compare two diffusion processes (one mean-reverting, the other unit root) with a stationary double Pareto distribution as a model of income dynamics. The data favors the mean-reverting process for modeling income dynamics over the unit root process.

Keywords: Anderson–Darling test; Diffusion processes; Fokker–Planck equation; Kolmogorov–Smirnov test; Laplace distribution; Mincer equation; Power law (search for similar items in EconPapers)
JEL-codes: C51 C65 D31 J3 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (74)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:84:y:2012:i:1:p:364-381

DOI: 10.1016/j.jebo.2012.04.012

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