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The Mystery of the Kuznets Curve: Why Does Economic Development Lead to Income Inequality?
Since the 1950s and 1960s, the "Kuznets curve" hypothesis proposed by economist Simon Kuznets has attracted widespread attention. The hypothesis holds that as the economy develops, market forces will first increase economic inequality and then reduce it. This theory posits that as a country progresses, income inequality will initially rise, then begin to decline when a certain input is reached, forming an inverted U-shaped curve. However, as time goes by, more and more data show that this process is not a simple curve, but a wave-like change.
The Kuznets curve suggests that as countries undergo industrialization, the center of economic gravity shifts to cities.
In the initial stage of economic development, there were more investment opportunities with capital, and at the same time, a large number of cheap rural laborers poured into the cities, depressing wages. As the economy develops, the accumulation of human capital becomes the main source of growth, while income inequality often lowers the level of education because the poor lack funds to receive education, which ultimately restricts the sustainable growth of the economy.
Furthermore, Kuznets believed that when a country experienced mechanization of agriculture, the income gap between urban and rural areas would widen. In this situation, farmers migrate to cities in search of higher wages, resulting in a decrease in the rural population and an increase in the urban population, further widening income inequality.
Many studies have shown the complex relationship between post-development income inequality and poverty.
However, since the 1960s, income inequality in developed countries has actually increased, causing many people to doubt Kuznets' theory. French economist Thomas Piketty argues that the decline in income inequality in the first half of the 20th century was due to a reset of wealth during wars and the Great Depression, rather than the normal economic process described by Kuznets.
The evidence consistent with the Kuznets curve is increasingly elusive, particularly when assessing income inequality across countries. Critics believe that the emergence of this U-shaped curve is not due to the laws of economic development, but is caused by differences in historical background and economic development stages among countries.
According to Piketty’s research, income inequality in some wealthy countries in the 21st century has exceeded levels seen in the early 20th century.
The emergence of the Asian economic miracle also challenges the validity of the Kuznets curve. Rapid economic growth in these countries has not been accompanied by rising income inequality; on the contrary, life expectancy has continued to increase and poverty rates have fallen. Scholar Joseph Stiglitz points out that this is because these countries quickly reinvested in land reform and universal education, thereby improving the living standards of ordinary people.
In addition, the study points out that the Kuznets curve framework may no longer be applicable when discussing the relationship between trade liberalization and inequality. The experience of some countries shows that trade openness has different effects on income distribution, and some countries have even experienced greater inequality.
The Environmental Kuznets Curve raises a related question: How does environmental quality change as the economy grows? Many studies have shown that the relationship between pollution and economic development is an inverted U-shape, that is, in the early stages of economic development, environmental quality declines, but when income reaches a certain level, environmental quality gradually improves.
Studies have pointed out that environmental indicators such as air pollution and water quality are affected by economic growth, showing an inverted U-shaped trend.
However, the applicability of the Environmental Kuznets Curve is also controversial, especially in relation to global pollution and biodiversity conservation. Many critics point out that environmental degradation is difficult to simply summarize with a curve, because pollution problems caused by industrialization are likely to worsen again in the future.
In this context, does the theory of the Kuznets curve still conform to the reality of current global economic and social changes? When exploring the causes of income inequality, should we rethink the applicability and limitations of this assumption?
