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Economic growth and income inequality

Опубликовано на портале: 03-12-2003
American Economic Review. 1955.  Vol. 45. No. 1. P. 1-28. 
The process of industrialization engenders increasing income inequality as the labor force shifts from low-income agriculture to the high income sectors. On more advanced levels of development inequality starts decreasing and industrialized countries are again characterized by low inequality due to the smaller weight of agriculture in production (and income generation).

Kuznets postulates that in the early stages of development both a country’s economic growth and its income inequality rises. For developed countries income inequality shows a tendency of narrowing. The paper offers a possible explanation for this process. It is the result of a secular shift from low-income, low-inequality agriculture to high-income, medium-inequality industrial production. This shift in itself would possibly lead to the suggested ‘inverted U’-shaped relationship between growth and inequality. Kuznets gives possible additional reasons for narrowing inequality:
1) increasing efficiency of the established urban population decreases inequality within the industrial sector.
2) The growing political power of the poor urban population results in protective and supporting legislation.
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