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Title: The Double Power Law in Income Distribution: Explanations and Evidence

Citation Type: Journal Article

Publication Year: 2012

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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.

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Authors: Toda, Alexis A.

Periodical (Full): Journal of Economic Behavior and Organization

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Pages: 1-18

Data Collections: IPUMS CPS

Topics: Labor Force and Occupational Structure

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