Income distribution patterns from a complete social security database

TL;DR

This study analyzes income distribution patterns over nine years in Romania using comprehensive social security data, confirming Pareto's law at high incomes and exponential distribution at lower incomes, while examining income dynamics.

Contribution

First extensive longitudinal analysis of Romanian income distribution using complete social security data, validating Pareto's law and exploring income dynamics over time.

Findings

Pareto's law holds with stable exponents around 2.5 across years

Income distribution at low/medium levels is exponential

Income dynamics show strong fluctuations and multiplicative growth patterns

Abstract

We analyze the income distribution of employees for 9 consecutive years (2001-2009) using a complete social security database for an economically important district of Romania. The database contains detailed information on more than half million taxpayers, including their monthly salaries from all employers where they worked. Besides studying the characteristic distribution functions in the high and low/medium income limits, the database allows us a detailed dynamical study by following the time-evolution of the taxpayers income. To our knowledge, this is the first extensive study of this kind (a previous japanese taxpayers survey was limited to two years). In the high income limit we prove once again the validity of Pareto's law, obtaining a perfect scaling on four orders of magnitude in the rank for all the studied years. The obtained Pareto exponents are quite stable with values around $\alpha \approx 2.5$, in spite of the fact that during this period the economy developed rapidly and also a financial-economic crisis hit Romania in 2007-2008. For the low and medium income category we confirmed the exponential-type income distribution. Following the income of employees in time, we have found that the top limit of the income distribution is a highly dynamical region with strong fluctuations in the rank. In this region, the observed dynamics is consistent with a multiplicative random growth hypothesis. Contrarily with previous results obtained for the japanese employees, we find that the logarithmic growth-rate is not independent of the income.