Economic Development and Inequality: a complex system analysis

TL;DR

This paper uses complex system analysis to explore the relationship between economic development, industrialization, and inequality globally and within US counties, revealing a shift in inequality trends over time.

Contribution

It introduces a novel application of the Fitness-Complexity algorithm to county-level data and uncovers a changing pattern of wage inequality with development.

Findings

Global inequality follows a Kuznets-like pattern from 1990 to 2008.

County-level analysis shows a reversal trend with increasing inequality as development progresses.

Wage inequality within US counties increased monotonically with industrialization in recent years.

Abstract

By borrowing methods from complex system analysis, in this paper we analyze the features of the complex relationship that links the development and the industrialization of a country to economic inequality. In order to do this, we identify industrialization as a combination of a monetary index, the GDP per capita, and a recently introduced measure of the complexity of an economy, the Fitness. At first we explore these relations on a global scale over the time period 1990--2008 focusing on two different dimensions of inequality: the capital share of income and a Theil measure of wage inequality. In both cases, the movement of inequality follows a pattern similar to the one theorized by Kuznets in the fifties. We then narrow down the object of study ad we concentrate on wage inequality within the United States. By employing data on wages and employment on the approximately 3100 US counties for the time interval 1990--2014, we generalize the Fitness-Complexity algorithm for counties and NAICS sectors, and we investigate wage inequality between industrial sectors within counties. At this scale, in the early nineties we recover a behavior similar to the global one. While, in more recent years, we uncover a trend reversal: wage inequality monotonically increases as industrialization levels grow. Hence at a county level, at net of the social and institutional factors that differ among countries, we not only observe an upturn in inequality but also a change in the structure of the relation between wage inequality and development.