The Pareto distribution, named after the Italian civil engineer, economist, and sociologist Vilfredo Pareto, is a power-law probability distribution that is used in description of social, scientific, geophysical, actuarial, and many other types of observable phenomena.
Originally applied to describing the distribution of wealth in a society, fitting the trend that a large portion of wealth is held by a small fraction of the population, the Pareto distribution has colloquially become known and referred to as the Pareto principle, or ”80-20 rule”, and is sometimes called the ”Matthew principle”. This rule states that, for example, 80% of the wealth of a society is held by 20% of its population.
Pareto’s law applies to society. It applies to biology. Pareto discovered that 20% of his garden’s pea pods produced 80% of the peas. Here is a summary, found on a site selling a book on 20-80. These observations have been discovered over the years.
(a) 80 percent of the results are achieved by 20 percent of the group.
(b) 20 percent of your effort will generate 80 percent of your results.
(c) In any process, few elements (20 percent) are vital and many elements (80 percent) are trivial.
(d) If you have to do ten things, two of those are usually worth as much as the other eight put together.
(e) 20 percent of the tasks account for 80 percent of the value…..
The Pareto Principle or the 80/20 rule proves its mettle in practically every area of management some of which are given below:
(a) 20 percent of the customers account for 80 percent of the sales.
(b) 20 percent of the products or services account for 80 percent of the profits.
(c) 20 percent of your stock takes up 80 percent of your warehouse space.
(d) 80 percent of your stock comes from 20 percent of your suppliers.
(e) 80 percent of your sales will come from 20 percent of your sales force.
(f) 20 percent of your staff will cause 80 percent of your problems.
(g) 20 percent of a company’s staff will output 80 percent of its production.
It applies all the way up. If you add up the wealth of the ten richest men on earth, the top three — Buffett, Gates, and Carlos Slim — own 70%.
In other words, this is a true sociological law. If sociologists were really serious, their discipline would begin with this law, for it really is a law. There is only one law of sociology that is more universal: Some do. Some don’t. Pareto’s is more useful. But the sociologists can no more explain it than the economists can.