d) Impact of economic change and development on inequality

• Who developed the hypothesis about income inequality in the 1950s?

  Simon Kuznets
• What does the Kuznets Curve explain?

  How income inequality changes during industrialisation
• What happens to income inequality during industrialisation?

  It increases as workers shift sectors
• Why does income inequality increase during industrialisation?

  Workers move to higher productivity manufacturing
• What occurs to workers left behind in the agricultural sector during industrialisation?

  They experience greater income inequality
• When does income inequality start to decrease according to Kuznets' hypothesis?

  At some point after industrialisation
• What is a likely reason for the decrease in income inequality?

  Government intervention funded by tax revenue
• How is the government intervention funded that helps decrease inequality?

  By increased state tax revenue from production
• country changes sectors from primary (farming) to secondary (manufacturing), productivity increases and the per capita income increases

  • However, inequality increasing as the gap in wages between primary and secondary sector significant
  • economy will reach a turning point of income where inequality begins to fall

  occurs as the primary sector diminishes while the secondary and tertiary (services) sectors increase

  • Developed economies generate more income from secondary and tertiary sectors