Inequality is claimed to rise then fall as an economy industrialises.
Not borne out in late-twentieth-century data, where inequality rose again in developed economies. Kuznets himself hedged it heavily, calling the paper five per cent empirical information and ninety-five per cent speculation.
In practice
- A country industrialising fast sees inequality widen as farm labour moves to the cities, and an adviser forecasts the fall the curve promises.
- Thirty years on the fall has not arrived, and the same adviser is explaining why this economy is the exception.
- Possible explanations
- The proposed mechanism is migration: industrialisation first moves a few workers into higher-paid sectors, which widens the gap, and later moves most of them, which narrows it again.
- In its favour
- The pattern fits several countries' industrialising decades, and the underlying migration mechanism is real and documented.
- Against it
- Inequality rose again across developed economies after the 1970s, which the curve does not predict, and Kuznets himself described the paper as mostly speculation.
- Standing
- Not borne out in late-twentieth-century data; Kuznets himself hedged it.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money