Angle, John and Nielsen, Francois and Scalas, Enrico (2009): The Kuznets Curve and the Inequality Process. Forthcoming in: (December 2009)

PDF
MPRA_paper_16058.pdf Download (239Kb)  Preview 
Abstract
Four economists, Mauro Gallegati, Steven Keen, Thomas Lux, and Paul Ormerod, published a paper after the 2005 Econophysics Colloquium criticizing conservative particle systems as models of income and wealth distribution. Their critique made science news: coverage in a feature article in Nature. A particle system model of income distribution is a hypothesized universal statistical law of income distribution. Gallegati et al. (2006) claim that the Kuznets Curve shows that a universal statistical law of income distribution is unlikely and that a conservative particle system is inadequate to account for income distribution dynamics. The Kuznets Curve is the graph of income inequality (ordinate variable) against the movement of workers from rural subsistence agriculture into more modern sectors of the economy (abscissa). The Gini concentration ratio is the preferred measure of income inequality in economics. The Kuznets Curve has an initial uptick from the Gini concentration ratio of the earned income of a poorly educated agrarian labor force. Then the curve falls in near linear fashion toward the Gini concentration ratio of the earned incomes of a modern, educated labor force as the modern labor force grows. The Kuznets Curve is concave down and skewed to the right. This paper shows that the iconic Kuznets Curve can be derived from the Inequality Process (IP), a conservative particle system, presenting a counterexample to Gallegati et al.’s claim. The IP reproduces the Kuznets Curve as the Gini ratio of a mixture of two IP stationary distributions, one characteristic of the wage income distribution of poorly educated workers in rural areas, the other of workers with an education adequate for industrial work, as the mixing weight of the latter increases and that of the former decreases. The greater purchasing power of money in rural areas is taken into account.
Item Type:  MPRA Paper 

Original Title:  The Kuznets Curve and the Inequality Process 
Language:  English 
Keywords:  conservative particle system; gamma probability density function; Gini concentration ratio; income distribution; Inequality Process; Kuznets Curve; purchasing power 
Subjects:  D  Microeconomics > D3  Distribution > D31  Personal Income, Wealth, and Their Distributions O  Economic Development, Technological Change, and Growth > O1  Economic Development > O15  Human Resources; Human Development; Income Distribution; Migration 
Item ID:  16058 
Depositing User:  John Angle 
Date Deposited:  06. Jul 2009 10:27 
Last Modified:  15. Feb 2013 21:30 
References:  Angle, John. 1983. "The surplus theory of social stratification and the size distribution of Personal Wealth." 1983 Proceedings of the American Statistical Association, Social Statistics Section. Pp. 395 400. Alexandria, VA: American Statistical Association. _____. 1986. "The surplus theory of social stratification and the size distribution of Personal Wealth." Social Forces 65:293 326. _____. 1990. "A stochastic interacting particle system model of the size distribution of wealth and income." 1990 Proceedings of the American Statistical Association, Social Statistics Section. Pp. 279 284. Alexandria, VA: American Statistical Association. _____. 1996. "How the gamma law of income distribution appears invariant under aggregation". Journal of Mathematical Sociology. 21:325358. _____. 2001. "Modeling the right tail of the nonmetro distribution of wage and salary income". 2001 Proceedings of the American Statistical Association, Social Statistics Section. [CDROM], Alexandria, VA: American Statistical Association. _____. 2002. "The statistical signature of pervasive competition on wages and salaries". Journal of Mathematical Sociology. 26:217270. _____. 2003. "Imitating the salamander: a model of the right tail of the wage distribution truncated by topcoding@. November, 2003 Conference of the Federal Committee on Statistical Methodology, [ http://www.fcsm.gov/events/papers2003.html ]. _____. 2006 (received 8/05; electronic publication: 12/05; hardcopy publication 7/06). AThe Inequality Process as a wealth maximizing algorithm@. Physica A: Statistical Mechanics and Its Applications 367:388414 (DOI information: 10.1016/j.physa.2005.11.017). _____. 2007. AThe Macro Model of the Inequality Process and The Surging Relative Frequency of Large Wage Incomes@. Pp. 171196 in A. Chatterjee and B.K. Chakrabarti, (eds.), The Econophysics of Markets and Networks (Proceedings of the EconophysKolkata III Conference, March 2007 Milan: Springer. Bernadelli, Harro. 194244. “The stability of the income distribution”. Sankhyā 6:351362. Friedman, Milton. 1970 [1953]. “The methodology of positive economics”. Pp. 343 in Essays in Positive Economics. Chicago: University of Chicago Press. Gallegati, Mauro, Steven Keen, Thomas Lux, and Paul Ormerod. 2006. “Worrying Trends in Econophysics”. Physica A 370:16. Joliffe, Dean. 2006. “The cost of living and the geographic distribution of poverty”. Economic Research Report #26 (ERR25) [ http://www.ers.usda.gov/publications/err26 ]. Washington, DC: Economic Research Service, U.S. Department of Agriculture. Kleiber, Christian and Samuel Kotz. 2003. Statistical Size Distributions in Economics and Actuarial Sciences. New York: Wiley. Kuznets, Simon. 1955. "Economic Growth and Income Inequality." American Economic Review 45:128. ______. 1965. Economic Growth and Structure. New York: Norton. McDonald, James and B. Jensen. 1979. “An analysis of some properties of alternative measures of income inequality based on the gamma distribution function.” Journal of the American Statistical Association 74: 856860. Nielsen, François. 1994. "Income Inequality and Development”. American Sociological Review59:654677. Nord, Mark. 2000. “Does it cost less to live in rural areas? Evidence from new data on food security and hunger”. Rural Sociology 65(1): 104125. Wolfson, Michael. 1994. “When inequalities diverge.” American Economic Review 84(#2) : 353358. 
URI:  http://mpra.ub.unimuenchen.de/id/eprint/16058 