Wage Inequality and the Level of Economic Development
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Publication date: 2010-08-31
GNPJE 2010;241(7-8):45-62
International economists are divided over whether income inequalities can be explained with the use of an approach known as the Kuznets hypothesis. Some researchers criticize the Kuznets hypothesis while others support it in their reports. According to Kumor, the Kuznets curve (which is the graphical representation of Russian American economist Simon Kuznets’ hypothesis that economic inequality increases over time while a country is developing, and then begins to decrease after a certain average income is attained) accurately reflects income inequalities only when there are distinct processes of change in the economy. The author sets out to check if the Kuznets hypothesis holds true for Poland. The research covered the period of 1974-2007 with two different economic systems: central planning in 1975-1988 and the market economy in 1990-2007. The processes of economic change in both systems were represented by GDP per employee. The author modified Gini coefficients (measures of the inequality of a distribution developed by Italian statistician Corrado Gini) characterizing wage inequalities. He also applied the method of least squares, a standard approach to the approximate solution of sets of equations in which there are more equations than unknowns. The results of the research seem to confirm a modified version of the Kuznets hypothesis, separately for both economic systems, according to Kumor. In the last analyzed year, 2007, the Gini coefficient was close to its maximum value, the author says.
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