Do the knowledge economy increase inequality? Reassessment of the impact of the Kuznets curve on income inequality in OECD

Abstract

PurposeThis study aims to focus on the influence of industrial structure changes, which is the fundamental idea of the Kuznets hypothesis, especially the service–knowledge structural change, on income inequality.Design/methodology/approachThis analysis uses the interaction term is that industrial structure changes multiplied by period dummy, this study indicates the effect of industrial structure changes on inequality from the 1970s. Using this method, this study reveals the impact of transitions in industrial structure, from agriculture to knowledge, on inequality.FindingsEmpirical analysis reveals a Kuznets curve relationship between income inequality and the agriculture–manufacturing structural change before the 1970s. From the 1980s to the 2000s, “The Great U-Turn,” which refers to events that expanded economic inequalities again, is observed in the relationship between inequality and the manufacturing–service structural change. Moreover, the service–knowledge structural change effect on inequality after the 2010s, through the Kuznets curve relationship. Therefore, this study confirms the Kuznets hypothesis is not a thing of the past hypothesis.Originality/valueThis study shows why income inequality in organisation for economic co-operation and development (OECD) countries has continued to increase in these days. Specifically, this study focuses on the impact of industrial structure changes and long-term trends, which has not been fully discussed in recent studies. The authors perform empirical analysis based on the relationship between these changes and inequality in developed countries. In addition, by setting a period dummy variable every decade, this study visualizes the transition of industrial structure changes in OECD clearly.