Quantitative Analysis of Industrial Structural Changes and Inequality:
A Study on the Transition of Income Inequality in OECD Countries
since 1970s
Kei Toyozawa and Tomoko Kinugasa
Graduate School of Economics, Kobe University
Abstract
Kuznets' inverted U-hypothesis is one of the most fundamental arguments related to therelationship between income distribution and economic development. On the other hand, fromthe late 1970s, mainly in developed countries, there was a tendency contradictory to the Kuznets
hypothesis described above that income inequality starts to rise despite near completion ofindustrialization it was. Therefore, the necessity of a new theory different from the Kuznets
hypothesis was raised, and a lot of economists discussed it (e.g., Harrison and Bluestone 1988;
Tribble 1996). However, Kwon (2016) insisted, when applied the Kuznets Hypothesis, it could
explain the relationship between the service-knowledge structural change in the United States inrecent years and the transition of income inequality. This study focused on the industrial structuralchange, which is the fundamental idea of the Kuznets hypothesis, and conducted a regression
analysis with the relation between structural changes occurred in developed countries and income
inequality as a starting point.
In this paper, we used cross-country panel data from 13 OECD countries from 1970 to 2016. Also,
we used a random effect model (REM) and a fixed effect model (FEM). Based on above data,
regression equations were defined, and each equation was analyzed by a plurality of methods suchas a FEM and a REM. Then selected the most appropriate method was using the Hausman test.
From the regression analysis, the Kuznets' inverted U-curve occurred between the fluctuation ofincome inequality and the agricultural-manufacturing structural change before 1970s. Also, theGreat U-turn, which is the hypothesis that refers to events that economic inequalities expanded
again occurred between income inequality and the manufacturing-service structural change from1980s to 2000s. Kuznets curve occurred again between income inequality and the serviceknowledge structural change after 2000s.
From the analysis results, we showed that not only in United States but in other developed
countries, the service-knowledge structural change that had occurred in recent years could
explained by the same principle as the Kuznets hypothesis. Furthermore, the reason why theexpansion of income inequality in OECD countries has prolonged in recent years, by applying
Tribble (1996), it was concluded that as follows. It was because the service-knowledge structuralchange occurred after inequality expanded by manufacturing-service structural change, also, theservice-knowledge structural change could explain using the Kuznets hypothesis.
References
Harrison, Bennett and Barry Bluestone. 1988. The Great U-Turn: Corporate Restructuring andthe Polarizing of America. New York: Basic Books.
Kwon, Roy. 2016. “A New Kuznetsian Dynamic: The Knowledge Economy and Income
Inequality in the United States, 1917–2008.” The Sociological Quarterly 57(1):174–204.
Tribble, Romie, Jr. 1996. “The Kuznets–Lewis Process within the Context of Race and Class in
the US Economy.” International Advances in Economic Research 2(2):151–164.