Inequality and Growth Reconsidered Once Again : Some New

In recent literature the famous Kuznets relationship between inequality and income has been reformulated in terms of levels of inequality and subsequent rates of growth. In this paper we criticize the World Bank data set on which these studies have been based, and present contrasting evidence on pay differentials derived from the 2000 release of the UNIDO Industrial Statistics, a rich source of information on inter-industry pay rates. Our evidence supports the original Kuznets formulation relating levels of inequality to levels of income (or changes in inequality to changes in income). We find that in modern data most countries are to be found on the downward-sloping portion of an inverted Kuznets U-Curve, and we find some support for an “augmented Kuznets curve” in which a few of the very highest-income countries experience rising inequality as their incomes rise. This paper has been prepared for the annual meetings on the Association for Comparative Economic Studies (ACES), New Orleans, January 5-7, 2001. Comments welcome.