A New Kuznetsian Dynamic: The Knowledge Economy and Income Inequality in the United States, 1917-2008

Abstract

The rise of the knowledge economy resulted in higher levels of income inequality in the United States and forced many to question the Kuznets Inverted-U hypothesis. However, this study argues that the establishment of a knowledge economy does not negate the importance of employment shifts for income inequality. Instead, the expansion of knowledge employment alters the major sectors that are responsible for the overall distribution of income. To this end, this article presents the key argument that the current service-knowledge transition impacts income inequality trends, of today, in a way that is similar to the agricultural-industrial transition, of the past. According to the autoregressive conditional heteroskedasticity regressions, the agricultural-industrial transition returns stronger associations with income inequality in the United States before 1950. The agricultural-industrial transition's impact diminishes thereafter as the service-knowledge transition shares a more robust association with income inequality after 1980.