Physicists' approach to studying socio-economic inequalities: Can humans be modelled as atoms?

TL;DR

This paper reviews physicists' models of socio-economic inequalities, highlighting empirical distribution features and proposing physics-inspired models to explain income, wealth, and consumption disparities.

Contribution

It introduces physics-based models to explain invariant features of socio-economic distributions, bridging physics and economics.

Findings

Income and wealth distributions fit log-normal and Gamma distributions.

The tails of distributions follow a power law (Pareto).

Consumption distributions show invariant features with a log-normal bulk and power law tail.

Abstract

A brief overview of the models and data analyses of income, wealth, consumption distributions by the physicists, are presented here. It has been found empirically that the distributions of income and wealth possess fairly robust features, like the bulk of both the income and wealth distributions seem to reasonably fit both the log-normal and Gamma distributions, while the tail of the distribution fits well to a power law (as first observed by sociologist Pareto). We also present our recent studies of the unit-level expenditure on consumption across multiple countries and multiple years, where it was found that there exist invariant features of consumption distribution: the bulk is log-normally distributed, followed by a power law tail at the limit. The mechanisms leading to such inequalities and invariant features for the distributions of socio-economic variables are not well-understood. We also present some simple models from physics and demonstrate how they can be used to explain some of these findings and their consequences.