Kwanho Shin, Korea University: Kuznets (1955) argued that although income inequality worsens during the early stages of economic development it eventually improves as the economy further develops. The reason is simple. As workers move from low-productivity sectors such as agriculture to high-productivity sectors such as manufacturing, income inequality aggravates at the beginning, but it improves as more and more workers join the high-productivity sectors. More recent studies do not support his arguments, however. For example, IMF (2007) found that income inequality is worsening again in advanced countries. OECD (2008) presents similar findings.
Several explanations have been provided to account for recent worsening income inequality. First, several studies argue that skill-biased technological progress is responsible for widening wage gaps between skilled and unskilled workers, contributing to income inequality. Second, other studies also point out the role of trade globalization by arguing that imports from less-developed...