Thermodynamics of inequalities: from precariousness to economic stratification

Matteo Smerlak

doi:10.1016/j.physa.2015.09.001

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arXiv · 1406.6441

Thermodynamics of inequalities: from precariousness to economic stratification

Matteo Smerlak

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Abstract

Growing economic inequalities are observed in several countries throughout the world. Following Pareto, the power-law structure of these inequalities has been the subject of much theoretical and empirical work. But their nonequilibrium dynamics, e.g. after a policy change, remains incompletely understood. Here we introduce a thermodynamical theory of inequalities based on the analogy between economic stratification and statistical entropy. Within this framework we identify the combination of upward mobility with precariousness as a fundamental driver of inequality. We formalize this statement by a "second-law" inequality displaying upward mobility and precariousness as thermodynamic conjugate variables. We estimate the time scale for the "relaxation" of the wealth distribution after a sudden change of the after-tax return on capital. Our method can be generalized to gain insight into the dynamics of inequalities in any Markovian model of socioeconomic interactions.

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Matteo Smerlak. 2014-06-25. Thermodynamics of inequalities: from precariousness to economic stratification. https://doi.org/10.1016/j.physa.2015.09.001

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