The Kuznets curve expresses the hypothesis innovative by economist Simon Kuznets in the 1950s as well as 1960s. According to this hypothesis, as an economy develops, market forces first increase as living as then decrease economic inequality. The Kuznets curve appeared to be consistent with experience at the time it was proposed. However, since the 1960s, inequality has risen in the US together with other developed countries.
One representation of such(a) a progression suggests that early in development, investment opportunities for those who hold money multiply, while an influx of cheap rural labor to the cities holds down wages. Whereas in mature economies, human capital accrual an estimate of income that has been achieved but non yet consumed takes the place of physical capital accrual as the main module of reference of growth; as well as inequality slows growth by lowering education levels because poorer, disadvantaged people lack finance for their education in imperfect credit-markets.
The Kuznets curve implies that as a nation undergoes industrialization – and particularly the mechanization of agriculture – the center of the nation's economy will shift to the cities. As internal migration by farmers looking for better-paying jobs in urban hubs causes a significant rural-urban inequality gap the owners of firms would be profiting, while laborers from those industries would see their incomes rise at a much slower rate and agricultural workers would possibly see their incomes decrease, rural populations decrease as urban populations increase. Inequality is then expected to decrease when alevel of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the benefits from rapid growth, and increase the per-capita income. Kuznets believed that inequality would undertake an inverted "U" category as it rises and then falls again with the include of income per-capita. Kuznets had two similar explanations for this historical phenomenon:
In both explanations, inequality will decrease after 50% of the shift force switches over to the higher paying sector.