Income inequality and mobility in geometric Brownian motion with stochastic resetting: theoretical results and empirical evidence of non-ergodicity

Stojkoski, Viktor; Jolakoski, Petar; Pal, Arnab; Sandev, Trifce; Kocarev, Ljupco; Metzler, Ralf

doi:10.1098/rsta.2021.0157

Income inequality and mobility in geometric Brownian motion with stochastic resetting: theoretical results and empirical evidence of non-ergodicity

Journal

Philosophical Transactions of the Royal Society A: Mathematical, Physical and Engineering Sciences

Date Issued

2022-04-11

Author(s)

Jolakoski, Petar

Pal, Arnab

Sandev, Trifce

Kocarev, Ljupco

Metzler, Ralf

DOI

10.1098/rsta.2021.0157

Abstract

We explore the role of non-ergodicity in the relationship between income inequality, the extent of concentration in the income distribution, and income mobility, the feasibility of an individual to change their position in the income rankings. For this purpose, we use the properties of an established model for income growth that includes ‘resetting’ as a stabilizing force to ensure stationary dynamics. We find that the dynamics of inequality is regime-dependent: it may range from a strictly non-ergodic state where this phenomenon has an increasing trend, up to a stable regime where inequality is steady and the system efficiently mimics ergodicity. Mobility measures, conversely, are always stable over time, but suggest that economies become less mobile in non-ergodic regimes. By fitting the model to empirical data for the income share of the top earners in the USA, we provide evidence that the income dynamics in this country is consistently in a regime in which non-ergodicity characterizes inequality and immobility. Our results can serve as a simple rationale for the observed real-world income dynamics and as such aid in addressing non-ergodicity in various empirical settings across the globe.

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