Chapter

The Kuznets Curve: Yesterday and Tomorrow

Thomas Piketty

in Understanding Poverty

Published in print May 2006 | ISBN: 9780195305197
Published online September 2006 | e-ISBN: 9780199783519 | DOI: http://dx.doi.org/10.1093/0195305191.003.0004
 The Kuznets Curve: Yesterday and Tomorrow

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The Kuznets curve hypothesis has been one of the most debated issues in development economics since the mid-1950s. In a nutshell, the hypothesis simply states that income inequality should follow an inverse-U shape along the development process: first rising with industrialization and then declining, as more and more workers join the high-productivity sectors of the economy. Today, the Kuznets curve is widely held to have doubled back on itself, especially in the United States, with the period of falling inequality during the first half of the 20th century being followed by a sharp reversal of the trend since the 1970s. This essay looks at this “technical change” view of inequality dynamics, whereby waves of technological innovations generated waves of inverse-U curves. It considers the inequality decline that took place in the West during the first half of the 20th century, arguing that recent historical research is rather damaging for Kuznets’s interpretation: the reasons why inequality declined in rich countries seem to be due to very specific shocks and circumstances that do not have much to do with the migration process described by Kuznets, and that are very unlikely to occur again in today’s poor countries. It takes a broader perspective on the technical change view of inequality dynamics, drawing both from historical experience and from more recent trends. It argues that this view has proven to be excessively naïve and that country-specific institutions often play a role that is at least as important as technological waves.

Keywords: inequality decline; U-curve; United States; technical change; institutions; economic development

Chapter.  4265 words.  Illustrated.

Subjects: Economic Development and Growth

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