Working Paper
Kuznets in the twenty-first century

Building upon a multisectoral framework in light of the Kuznetsian paradigm, this paper analyses the relationship between structural transformation and income inequality. Empirical evidence is drawn using a large census dataset consisting of more than 22 million individuals from Mexico and the United States in 2000 and 2020. 

The Gini coefficient of income in Mexico decreased from 0.49 in 2000 to 0.43 in 2020, whereas it slightly increased in the US from 0.49 in 2000 to 0.51 in 2020. Movement of workers from other sectors to manufacturing and industry in the bottom income quantiles, and to services in the middle income quantiles, lowers the income disparity in Mexico. On the other hand, movement of workers from other sectors to manufacturing and industry in the top income quantiles, and to business and finance services in the upper middle income quantiles, appears to increase the income disparity in the US. 

Therefore, the type of services matters in explaining inequality dynamics—business services in a high income context and both business and non-business services in a middle income country context. The analysis suggests that we need to go beyond manufacturing in understanding the relevance of Kuznets in the twenty-first century.