Until recently, sustaining high economic growth was thought to be the ultimate goal of development. Unfortunately, economic growth does not necessarily imply an improvement in the standards of living of all of the country's citizens, due to the unequal distribution of income. Income inequality is a problem for both developing and developed nations across the globe, but it is most evident in the great metropolises of the developing world. Much research has been done to determine the true relationship between growth and income inequality and recently, emphasis has shifted to ascertaining exactly what social and economic determinants affect the level income inequality in a country. This paper focuses on determining the effects that the level of income, structure of output, structure of employment, population growth and the level of human capital have on the unequal distribution of income. Based on Kuznets' inverted-U hypothesis and the two sector labor surplus model, this study uses two ordinary least squares regression models in order to establish the relationship between income inequality and each of these determinants. The results for this research provide some evidence on the existence on the inverted-U hypothesis. Furthermore, it is determined that the most important factors affecting income inequality are the extent of high levels of human capital, the distribution of population between urban and rural areas and the rates of population growth.
Giraldo '03, Juliana, "The Truth About Income Inequality" (2003). Honors Projects. Paper 4.