Income Distribution in the European Union Versus in the United States

TL;DR

This paper extends a formalism to analyze income distributions in the EU and US, revealing impacts of the financial crisis and potential early warning signs of market instability.

Contribution

It introduces a universal formalism for modeling income distributions across different regions and social classes, and applies it to study crisis effects.

Findings

The formalism accurately describes income distributions in both regions.

The financial crisis had the most severe impact on all social classes' incomes.

Potential early indicators of market crises were identified.

Abstract

We prove that the refined approach -- our extension of the Yakovenko et al. formalism -- is universal in the sense that it describes well both household incomes in the European Union and the individual incomes in the United States for social classes of any income. This formalism allowed the study of the impact of the recent world-wide financial crisis on the annual incomes of different social classes. Hence, we indicate the existence of a possible precursor of a market crisis. Besides, we find the most painful impact of the crisis on incomes of all social classes.