Week 7 HT08

1
Sociology of Industrial Societies
Industrialization, globalization and income
inequality
Week 7 HT08
2
Industrialization, globalization and income
inequality

• Lecture plan
• Changing patterns of income inequality with
  industrial development
• Industrialization and the Kuznets curve
• Globalization and the great U-turn
• Changing patterns of income inequality
  within/between industrial societies
• Crossnational differences in extent of income
  inequality
• Crossnational convergence towards growing
  inequality?
• Changing patterns of world income inequality
• Rising, declining, or absent trend worldwide?
• How are developing nations faring?

Industrialization, globalization and income
inequality
Week 7 HT08
3
Income inequality and industrial development

• Industrialization and the Kuznets curve (Kuznets
  1953, 1955)
• Longstanding consensus that income
• inequality is curvilinearly related to
• industrial development in an inverted
• U shape
• As industrial societies begin to develop,
• income inequalities increase due to
• compositional changes, esp.
• shift of labour away from low-income
• agricultural sector into high-income
• industry and services
• But as industrialization progresses, income
• inequalities begin to decline
• for Kuznets, once shift into high-

Source Kuznets 1953, ch.5
Industrialization, globalization and income
inequality
Week 7 HT08
4
Income inequality and industrial development

• Globalization and the great U-turn
• More recent empirical work shows striking upturn
  in income inequality since c.1970
• Particularly pronounced in USA and UK
• Linked by many theorists to growing
• globalization of the world economy
• economic globalization posited to
• promote income polarization
• within industrial societies
• inhibit nation states from redressing
• income inequalities by way of
• strong tax and redistribution policies
• foster convergence of industrial
• societies on the economic-liberalism,

Source Atkinson 1997
Industrialization, globalization and income
inequality
Week 7 HT08
5
Income inequality and industrial development

• The Kuznets curve and the great U-turn a common
  developmental path?
• Multiple-country studies have shown similar
  relationships between level of GDPpc and degree
  of income inequality
• Among low-income countries (I),
• income inequality rises sharply
• with higher GDPpc
• Among middle-income countries
• (II), income inequality declines
• with higher GDPpc
• Among rich countries (III), income
• inequality rises again with higher
• GDPpc
• NB Studies of this kind rely heavily on
• cross-sectional data

Source List and Gallet 1999
Industrialization, globalization and income
inequality
Week 7 HT08
6
Income inequality within/between industrial
societies

• How unequal are contemporary industrial
  societies?
• Substantial income inequality differences between
  industrial societies
• Social democratic
• the most equal
• Liberal countries
• the most unequal
• Conservative countries
• somewhere in middle
• Multiple data points show
• different time points, and
• good deal of within-country
• variability over time
• Convergence towards

Source Gustafsson and Johansson 1999
Industrialization, globalization and income
inequality
Week 7 HT08
7
Income inequality within/between industrial
societies

• Questionable uniformity of change over time
• Rising within-country income inequality
• in 11 out of 16 industrial societies since 1970s
• In 7 cases, pattern is one of polarization
• (UK, USA, AUT, AUS, FIN, LUX, ITA)
• In 4 cases, only small increase in inequality
• and no polarization (NOR, BEL, SWI, DEN)

Changing percentages in each income decile

• Small decline in income inequality in 3 countries
  (GER, FRA, NTH)
• Substantial decline in 2 countries (SWE, CAN) due
  to shift from top and esp. bottom deciles middle
  of distribution

Source Alderson et al 2005
Source Alderson et al 2005
Industrialization, globalization and income
inequality
Week 7 HT08
8
Income inequality within/between industrial
societies

• Changing income inequality with globalization?
• Empirical evidence to link globalization to
  growing income disparities between low-skill and
  high-skill workers as industrial societies
  de-industrialize (Alderson and Nielsen 2002)
• Foreign direct investment
• North-South trade
• Low-skill migration
• But evidence that inequality-
• promoting globalization forces
• can be counteracted
• USA, SWE and FIN have all
• undergone inequality-
• inducing manufacturing
• decline and rising foreign
• imports
• But offset by expanding

Source Gustafsson and Johansson 1999
Industrialization, globalization and income
inequality
Week 7 HT08
9
World income inequality

• Changing patterns of world income inequality
• Changing balance of within/between
• country inequality worldwide
• Historically world income inequality
• primarily within countries
• Since c.1950, bulk of world income
• (consistently) between countries
• Expectations of convergence?
• Principle of diminishing returns to
• capital and labour mean poorer
• nations will tend to catch up
• Expectations of polarization?

Source Bourguignon and Morrison 2002
Industrialization, globalization and income
inequality
Week 7 HT08
10
World income inequality

• World income inequality trends countries or
  people of the world?
• Concept 1 GDPpc
• Measures between-country
• differences in GDP per capita
• Trend is one of rising world
• income inequality over time
• Concept 2 weighted GDPpc
• Measures between-country
• differences in GDP per capita
• weighted according to country
• population size
• Trend is one of declining world
• income inequality

Source Milanovic 2005, p.4
Industrialization, globalization and income
inequality
Week 7 HT08
11
World income inequality

• World income inequalities regional contributions
  to unweighted inequality
• Between-country inequality declining then stable
  if look just at rich WENAO countries (W.Europe,
  N.America, Oceania)
• Higher but stable over time
• if add Asian nations
• Higher after c.1980 if add
• LAC nations (L.America,
• Caribbean)
• Higher after c. 1990 if add
• transition countries
• (E.Europe, fmr USSR)
• Higher from c.1960 thru
• early-1980s when add
• remaining countries of
• Africa

Source Milanovic 2005, p.42
Industrialization, globalization and income
inequality
Week 7 HT08
12
World income inequality

• World income inequality trends impact of
  outliers on weighted inequality
• Exceptionally large influence of
• countries with large populations
• on population-weighted measures
• of world income inequality
• Also of countries with unusually
• high (or low) GDPpc growth
• Exemplar in China large
• population, substantial
• economic growth in recent
• decades
• Excluding China, world income
• inequality stable through 1960s
• and 1970s, followed by mild
• increase since early 1980s

Source Milanovic 2005, p.87
Industrialization, globalization and income
inequality
Week 7 HT08
13
World income inequality

• World income inequality trends counterbalancing
  impact on weighted inequality of changing GDPpc
  and population size in rich and poor countries
• World income inequality increased substantially
  by
• Faster than average income growth for some rich
  countries, e.g. Japan
• Slower than average income growth coupled with
  faster than average population increase for poor
  countries like India
• But at same time world income
• inequality decreased by
• Slower than average
• income growth for
• some rich countries,
• esp. USA
• Faster than average
• income growth for
• some poor countries,

Source Firebaugh 1999
Industrialization, globalization and income
inequality
Week 7 HT08
14
Industrialization, globalization and income
inequality

• Conclusions
• Changing patterns of income inequality
  within/between industrial societies
• Kuznets curve of rising then declining income
  inequality with industrial development common to
  most contemporary industrial societies
• but great U-turn in globalized era far from
  univeral welfare states can and do offset
  inequality-promoting forces limited convergence
  of within-country inequality
• Changing patterns of world income inequality
• Unweighted inequality between nations has been
  rising, due to rich-country convergence (c.mid50s
  to late70s) and rich-poor country divergence
  during 60s and 70s (Africa) 1980s (LAC) and 1990s
  (transition)
• but population-weighted inequality has been
  declining, due to rich-poor country differences
  in growth rates of economy and population
• and gains made by some developing countries mask
  persistent/worsening gap between other developing
  countries and the developed world

Industrialization, globalization and income
inequality
Week 7 HT08