Empirical study and model of personal income

Details Empirical study and model of personal income Empirical study and model of personal income

2005-05-25

arxiv.org/abs/physics/0505173v1

Physics

Physics and Society

9 pages, 5 figures, to appear in Proceedings of International Workshop on Econophysics of Wealth Distribution

Scientific paper

Personal income distributions in Japan are analyzed empirically and a simple stochastic model of the income process is proposed. Based on empirical facts, we propose a minimal two-factor model. Our model of personal income consists of an asset accumulation process and a wage process. We show that these simple processes can successfully reproduce the empirical distribution of income. In particular, the model can reproduce the particular transition of the distribution shape from the middle part to the tail part. This model also allows us to derive the tail exponent of the distribution analytically.

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