How universal is the law of income distribution? Cross country comparison

TL;DR

This study demonstrates that the evolution of personal income distribution across four countries follows a universal pattern driven by real GDP per capita, and introduces a simple differential equation model that accurately predicts these features.

Contribution

The paper introduces a universal microeconomic model linking income distribution features solely to real GDP per capita, validated across multiple countries.

Findings

PID features match across countries when scaled by GDP per capita.

The model accurately predicts the age of maximum mean income.

Income distribution evolution is driven by a common economic factor.

Abstract

The evolution of personal income distribution (PID) in four countries: Canada, New Zealand, the UK, and the USA follows a unique trajectory. We have revealed precise match in the shape of two age-dependent features of the PID: mean income and the portion of people with the highest incomes (2 to 5% of the working age population). Because of the U.S. economic superiority, as expressed by real GDP per head, the curves of mean income and the portion of rich people currently observed in three chasing countries one-to-one reproduce the curves measured in the USA 15 to 25 years before. This result of cross country comparison implies that the driving force behind the PID evolution is the same in four studied countries. Our parsimonious microeconomic model, which links the change in PID only with one exogenous parameter - real GDP per capita, accurately predicts all studied features for the U.S. This study proves that our quantitative model, based on one first-order differential equation, is universal. For example, new observations in Canada, New Zealand, and the UK confirm our previous finding that the age of maximum mean income is defined by the root-square dependence on real GDP per capita.