What Is a Kuznets Curve?

The Kuznets Curve is a curved image that characterizes the hypothesis that as a country’s economy gets better, the inequality among the people’s income level worsens. This is the case where people would say, “Rich people get rich, while the poor become poorer.” The hypothesis behind the Kuznetz Curve was the observation of Simon Kuznets, an American economist who eventually became the recipient of the Nobel Prize in Economics.

While teaching in the University of Pennsylvania, Kuznets took to studying economic inequality and how economic resources — financial or not — were distributed to the working society. During this time, he observed a pattern wherein a bulk of a country’s per capita income would be allocated to a low percentage of the population, mainly of the upper class. This inequality would then experience a peak and would eventually even out as the country continues to develop. Kuznets presented his findings in 1955, and the hypothesis has become influential in the economic world. Kuznets illustrated his observation using an inverted U, the very image of a Kuznets Curve.

There can be several reasons that explain the illustration of the Kuznets Curve. One probable reason that accounts for the inequality is the tendency for the rural population to migrate to urban places, in search of better jobs and “greener pastures.” These people would then start out in low-paying and entry-level jobs that would result in low incomes. In developing agricultural nations, many agricultural workers are also inclined to transfer to industry-related occupations, a phenomenon that would also bring about low incomes, while the “big bosses” in the companies earn more money. Eventually, as the migrant workers move up the business ladder, they get to earn more, and the economic equality decreases in time.

Aside from an economic point of view, the Kuznets Curve has also been applied in an environmental perspective. In this case, as the per capita income of a country increases, the concern for the environment decreases. One can easily observe that the most industrialized cities would almost always be more polluted than the less progressive ones. A likely reason for the occurrence would be the population increase: more trees are cut to give space to high-rise buildings, more cars are driven, more trash is idly thrown away, and more waste is accumulated in sewage systems.

Just like the economic Kuznets Curve, the environmental Kuznets Curve would eventually indicate a decrease in economic degradation. This may probably be a result of the people’s realization of the repercussions of the economic development and would make amends by helping “Mother Nature.” Many companies would make an effort to reduce carbon footprints, building “greener” equipment and systems, and recycle waste products.