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Kuznets: Economic Growth and Income Inequality (1955)

The Point: This paper from 1955 his of historical importance in the study of inequality. Looking at annual income levels over the course of roughly 50-75 years Kuznets finds that beginning in as early as the nineteen-twenties, the inequality of income distribution in the UK, US, and Germany narrowed rather than widened. In 2011, this paper was selected as one of the American Economic Review's 20 most influential papers of all time.

The Quote: "This paper is perhaps 4 per cent empirical information and 95 per cent speculation, some of it possibly tainted by wishful thinking."

The Questions Being Asked: "Does inequality in the distribution of income increase or decrease in the course of a country's economic growth? What factors determine the secular level of and trends of income inequality"

The Data: Annual income levels (before taxes) in the UK, US, and Germany over two generations.. Kuznets looks at family units adjusted for family size, He wants to get a grasp of the entire income distribution rather than just segments of it, wherever possible he wants to leave aside cases where the primary earner in a family is either in school or retired, he wants to look at national income earned by individuals excluding capital gains, and he wants to try to infer trends in secular income rather than annual levels of income, which fluctuate more in response to disturbances.

You can find the full paper here.

Citation: Kuznets, Simon. "Economic Growth and Income Inequality." American Economic Review 45, no. 1 (1955): 1-28.

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