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THE KUZNETS CURVE AND THE GREAT U-TURN:
INCOME INEQUALITY IN U.S. COUNTIES, 1970 TO 1990*
he evolution of social inequality in the nets curve and the Great U-Turn. Kuznets
course of human history is a central (1953, [1955] 1965) noted that income in-
topic of stratification research (Lenski equality has an inverted-U shaped relation-
[1966] 1984). While most sociologists view ship with economic development. Using data
social inequality as multidimensional, in- for a handful of industrial societies in the
volving power and prestige as well as in- nineteenth and twentieth centuries, he
come, inequality in the distribution of in- showed that income inequality initially in-
come is a tangible and measurable aspect of creased with industrial development, peaked
inequality. Two major trends in inequality and leveled off, then declined with further
have characterized industrial and developing development, with the exact timing of the de-
societies in the twentieth century: the Kuz- cline differing somewhat across societies. In
the United States, inequality peaked in the
late 1800s and did not begin declining until
* Direct correspondence to Frangois Nielsen,
Department of Sociology, University of North the late 1920s. Lampman (1962) found that,
Carolina, Chapel Hill, NC 27599-3210 (francois_ in the United States, a strikingly similar
nielsen@unc.edu). An early version of this paper curve depicts the evolution of inequality in
was presented at the annual meeting of the the distribution of wealth, as distinct from
American Sociological Association in Washing- income, with the gap in the share of wealth
ton, DC., August 1995. Partial support for this re-
between rich and poor also declining sharply
search was provided by a summer stipend from
between the late 1920s and the middle of the
the Institute for Research in Social Science at the
century. Later research largely confirmed the
University of North Carolina at Chapel Hill. We
thank Gerhard Lenski, Rachel Rosenfeld, three Kuznets-Lampman findings for the United
ASR reviewers, and the ASR editors for their help- States (Williamson and Lindert 1980:281).
ful advice. Lindert and Williamson (1985:345, fig. 2)
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THE KUZNETS CURVE AND THE GREAT U-TURN 13
.410- 55
Share of top
(personal in
0 5
.366
= .344-
45@
.300- 1 1 1 40
1925 1940 1955 1970 1985 2000
Year
Figure 1. Inequality in the Distribution of Family Income by Year: United States, 1929 to 1992
Note: Percent income share (right-hand scale) is based on personal income for 1929 through 1964 and on
money income for 1947 through 1992. Personal income includes money income plus certain nonmonetary
forms of income such as estimated net rental value to owner-occupants of their homes.
Sources: U.S. Bureau of the Census 1975, series G319-336; 1986, table 12; 1993, table B-7.
found parallel declines in income inequality and Bluestone (1988), who place the start of
experienced by other industrial societies in the upswing in inequality in 1969 for the dis-
the twentieth century as well.' tribution of family income and in 1976 for
The recent experience of industrial societ- the distribution of wages and salaries
ies, however, suggests an added twist to (1988:7, fig. 1.3; 119, fig. 5.2). The resump-
Kuznets's depiction of the evolution of in- tion of an upward trend in income inequality
equality associated with development. has been confirmed by several observers
Williamson and Lindert (1980:5) saw in- (Thurow 1987; Bluestone 1990; Levy and
equality as declining in the United States Michel 1991; Levy and Murnane 1992; Mor-
from the late 1920s to about 1950. The next ris, Bernhardt, and Handcock 1994). Figure
two decades were characterized by a "curi- 1 shows the evolution of inequality in the
ous stability" at a relatively low level of in- distribution of personal or money income
equality. The period since 1970 has been among families in the United States from
characterized by a resurgence of income in- 1929 to 1992 (inequality is measured by the
equality in U.S. society severe enough to be Gini coefficient or as the share of aggregate
christened the "Great U-Turn" by Harrison income accruing to the top quintile). The tail
end of the decline in inequality associated
with the Kuznets curve and the Great U-Turn
I Despite isolated skepticism (Papanek 1978),
the Kuznets curve has also been documented for are both clearly visible. A similar upswing
contemporary developing societies (Lecaillon et in inequality has also been documented for
al. 1984; Gagliani 1987; Nielsen 1994; Nielsen the distribution of earnings for men in
and Alderson 1995). Canada, Sweden, Australia, and West Ger-
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14 AMERICAN SOCIOLOGICAL REVIEW
many (Green, Coder, and Ryscavage 1992), independent political entities, they vary con-
suggesting that the trend is international. siderably in economic infrastructure, demo-
The long-term decline in inequality asso- graphic profile, and level of prosperity.
ciated with industrial development repre- Counties, as opposed to cities or SMSAs,
sented by the Kuznets curve and the more represent the complete range of social land-
recent reversal of this trend in the Great U- scapes, from entirely rural to dense metro-
Turn have been attributed to diverse causes. politan areas. If one were to plot the 3,100
Indeed, the two historical episodes are dis- counties at the three time points on a graph
cussed in distinct literatures. Most theories relating income inequality to development,
of the causes of the inverted-U pattern of the 9,300 data points would span a wide
the Kuznets curve have been based on cross- "window" on the rightmost segment of the
national comparisons. In contrast, explana- Kuznets curve. On the right side of the graph,
tions of the Great U-Turn have been based the more prosperous counties in later periods
largely on the U.S. domestic context. We might show evidence of the upswing in in-
combine these two theoretical threads in a equality corresponding to the Great U-Turn.
model of inequality that accounts for both On the left of the graph, the least prosperous
historical episodes. We then investigate the counties in the earliest periods might still
model's predictions using census data on in- trace the characteristic hump of the Kuznets
come inequality in U.S. counties from 1970 curve, as Braun (1991:247, fig. 6.3) claimed
to 1990. for non-southern counties as late as 1980.
Using counties rather than nations as units
of analysis has methodological advantages.
INCOME INEQUALITY IN
Procedures of data collection and measure-
U.S. COUNTIES IN THE LATE
ment used by the Census Bureau are the
TWENTIETH CENTURY
same across units, at least at the same time
The evolution of income inequality has tra- point, and when procedures do differ, they
ditionally been investigated using historical are well documented. In contrast, cross-na-
data for individual countries (as in the admi- tional data on income inequality are notori-
rable survey of the United States from ously delicate to compare (Menard 1986;
colonial times to the 1970s by Williamson Hoover 1989). Furthermore, many legal, edu-
and Lindert 1980), or using cross-sections of cational, and political institutions are shared
contemporary countries (see the literature by counties. These extraneous effects there-
cited in Nielsen 1994 and Nielsen and Alder- fore will not contribute to the noise con-
son 1995). The relative scarcity of compa- founding the effects of the structural vari-
rable cross-national data over time has been ables of interest.
a major problem in prior research (Gagliani Finally, counties observed at multiple time
1987). Observations often have been too few points constitute a time series of cross-sec-
to yield strong inferences (but see Nielsen tions that incorporates variability both across
and Alderson 1995). We avoid that problem units and over time. A data set with such a
by studying inequality in the distribution of panel structure is potentially amenable to the
income in approximately 3,100 counties of use of powerful statistical techniques (based
the United States over three decennial cen- on pooling the cross-sections) that can in-
sus periods from 1970 to 1990. Using coun- crease efficiency of estimation (in the case
ties as units of analysis makes it possible to of cross-sectional linear models) and can cor-
examine several thousand income distribu- rect for estimation inconsistency (in the case
tions at three points in time and over a wide of models incorporating the lagged depen-
range of social contexts. dent variable).2
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THE KUZNETS CURVE AND THE GREAT U-TURN 15
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16 AMERICAN SOCIOLOGICAL REVIEW
equality. These two traditions-research on the strong negative association between in-
the Kuznets curve and the debate surround- equality and development. Therefore, the hy-
ing the Great U-Turn-have evoked sets of pothesis involving urbanization specifies a
explanatory factors that are largely nonover- control for development. We use population
lapping. We also investigate a potential fac- density as a measure of the urbanization of a
tor affecting inequality, racial dualism, which county. Kuznets's ([1955] 1965) discussion
is central to the historical experience of the implies that, controlling for economic devel-
United States and not usually discussed in opment, urbanization (measured as popula-
the other research traditions. tion density) has a positive effect on income
inequality.
Kuznets' ([1955] 1965:269-75) explana-
Income Inequality and Industrial
tion of the inverted-U pattern stressed the
Development
dualism between the traditional (agricultural)
The Kuznets curve postulates a negative re- and modern (nonagricultural) sectors of a de-
lationship between inequality and develop- veloping economy. A society at an early
ment for societies at relatively high levels of stage of industrialization is characterized by
development. Williamson (1991:8) noted that the coexistence of a small modern industrial
this declining portion of the Kuznets curve sector with high productivity and wages and
is empirically robust and well documented. a large traditional agricultural sector with
The level of development of most counties low productivity and wages. As an increas-
in the period from 1970 to 1990 corresponds ing proportion of the labor force moves from
to this declining segment of the Kuznets the low-income traditional sector to the high-
curve. In our empirical analyses, we use me- income modern sector, income inequality in-
dian family income as the measure of eco- creases, levels off, and then decreases. This
nomic development because it is a close sub- occurs as an automatic numerical conse-
stitute for gross domestic product per capita, quence of the population transfers between
a measure commonly used in cross-national sectors (Robinson 1976; Lydall 1977:205--
research. We therefore predict that during the 25; Fields 1980; Lecaillon et al. 1984:16-22;
period under study, there is a negative rela- Nielsen 1994: 659, fig. 2).
tionship between income inequality and level The degree of inequality due to the differ-
of development as measured by median fam- ence between the agricultural and nonagri-
ily income. cultural sectors in average income is called
Kuznets ([1955] 1965:264) speculated that sector dualism. Sector dualism is a function
income inequality in developing societies is of both the difference between sectors in av-
typically higher in urban centers (with their erage income and the relative size of the sec-
enormous diversity of social conditions rang- tors (Lecaillon et al. 1984). Using cross-na-
ing from the destitute to wealthy industrial- tional data, Nielsen (1994) and Nielsen and
ists) than in rural areas (which he viewed as Alderson (1995) showed that sector dualism
populated by many small economic units of is significantly associated with overall in-
similar size and therefore inherently more come inequality and partially explains the
egalitarian). Kuznets's conjecture, to the ex- inverted-U pattern of the Kuznets curve. In
tent that it can be applied to the urban-rural cross-national data, the impact of sector du-
contrast in developed societies, predicts a alism on inequality is greatest at relatively
positive association between income inequal- low levels of development. Developed soci-
ity and urbanization. The issue is compli- eties, including the United States, have low
cated by the positive correlation between levels of sector dualism, in part because the
urbanization and economic development. agricultural sector is no longer a substantial
Highly urbanized counties are also likely to fraction of the labor force (Lecaillon et al.
be more economically prosperous and there- 1984; Nielsen 1994:660, fig. 3). We use a
fore have less inequality because of the nega- measure of sector dualism based on a com-
tive relationship between inequality and de- parison of farm and nonfarm earnings to es-
velopment. In zero-order associations, any timate dualism's effect on income inequality
independent positive effect of urbanization at the county level. Given the high level of
on inequality is likely to be overshadowed by development of counties in 1970 (and later)
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THE KUZNETS CURVE AND THE GREAT U-TURN 17
and their relative homogeneity compared to creasing the supply of labor, especially of
a cross-section of countries, we do not ex- unskilled labor. Nielsen (1994) showed that
pect the effect of sector dualism to be as the rate of natural increase has a positive ef-
strong as that found in cross-national data. fect on inequality in cross-national data and
Therefore, to the extent that sector dualism attributed part of this effect to the fact that
is still a determinant of inequality in the pe- population growth is also a proxy measure of
riod under study, we predict that: (1) sector generalized dualism; that is, the degree of
dualism has a positive effect on overall in- general social heterogeneity resulting from
come inequality, and (2) the positive effect of the uneven diffusion of industrial technology
sector dualism decreases over time. and culture (Lenski, Lenski, and Nolan
Sector dualism measures the amount of 1991:401). The rate of natural increase is a
overall income inequality that results from proxy (possibly a crude one) for generalized
the difference in average income between dualism because it measures the gap between
sectors. The distribution of the population the early adoption of mortality-reducing
among sectors can also affect overall in- modern technologies and the later adoption
equality to the extent that inequality differs of modern attitudes toward reproduction and
within sectors. If, as Kuznets ([1955] 1965: modern birth control methods. The effect of
264) believed, inequality is lower in the ag- population growth on income inequality is
ricultural sector than in the nonagricultural expected to be smaller for U.S. counties,
sector, it follows that a relatively large agri- which are well past their demographic transi-
cultural sector gives more weight to the more tions, than it would be in a cross-section of
equal sector and results in lower overall in- contemporary nations. To the extent that this
equality (Nielsen 1994). Therefore, we con- demographic mechanism is at work in the
trol for the size of the agricultural sector in period under study, and assuming that the
our model (measured as percent farm popu- demographic transition's effects decay over
lation) and predict that, controlling for sec- time, we predict that: (1) the rate of natural
tor dualism, size of the agricultural sector increase (birth rate minus death rate) has a
has a negative effect on income inequality. positive effect on income inequality, and (2)
The demographic transition, a major fea- this effect is stronger in earlier than in later
ture of industrial development in which the periods.
early reduction in the death rate is not offset Another major aspect of development is
until later by a decline in the birth rate, has the diffusion of education. Beginning with
been implicated as an underlying cause of the Mill (1848) over a century ago, social scien-
inverted-U shape of the Kuznets curve. The tists have believed that the spread of educa-
position of a society along the demographic tion, sometimes called "skills deepening"
transition is indicated by the rate of natural (Williamson 1991), is associated with re-
increase in the population, calculated as the duced inequality.4 This is consistent with the
difference between the birth rate and the standard economic argument that an increase
death rate (Nielsen 1994:663, fig. 4). Ahlu- in the supply of people with advanced edu-
walia (1976) found a strong positive associa- cational credentials should increase compe-
tion between a population's rate of natural tition for positions requiring these creden-
increase and income inequality in cross-na- tials and thereby reduce the wage differen-
tional data.3 Pursuing an earlier suggestion tial between the educated and uneducated
of Kuznets ([1955] 1965:277-78), Lindert (Tinbergen 1975; Lecaillon et al. 1984:88).
and Williamson (1985:368-69; Williamson The spread of education, as measured by en-
1991:25-27) argued that population growth rollments in secondary schools, has a strong
tends to increase income inequality by-in- negative effect on income inequality in cross-
national data (Simpson 1990; Nielsen 1994).
This finding would be expected in a cross-
3 Other researchers have documented an asso-
national data set in which units of analysis
ciation between income inequality and the pro-
portion of the population under age 15, a variable
that is highly correlated with the rate of natural 4Lecaillon et al. (1984:86-90), however, dis-
increase (Bollen and Jackman 1985a; Simpson cuss plausible scenarios associating the spread of
1 990). education with increased income inequality.
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18 AMERICAN SOCIOLOGICAL REVIEW
span the entire range of development levels. tion between average educational attainment
In such a context, educational expansion and economic development as measured by
ovaries so strongly with development that median family income. We speculate that in
its relationship with inequality should be earlier periods, the spread of education at the
negative. county level was strongly associated with
A few researchers have pointed out that the economic development and that its overall
relationship between income inequality and effect on inequality was negative the same
educational expansion may differ among ad- effect as that found in cross-national data. By
vanced industrialized societies. Crenshaw 1990, the compositional effect of the educa-
and Ameen (1994) claimed that, even in a tional distribution grew stronger, and thus the
cross-national context, the relationship is re- effect of educational heterogeneity on in-
versed and becomes positive at high levels of come inequality should be increasingly posi-
educational expansion, reflecting "a post- tive. Therefore, we predict that the positive
industrial regime with a new set of social in- effect of educational heterogeneity on income
equalities" (p. 11). Jacobs (1985) argued that inequality is stronger in later than in earlier
the distribution of educational attainment af- periods.
fects the distribution of income through the Income inequality in the United States has
dispersion of education rather than through historically been higher than in other ad-
the average level of education. To the extent vanced industrial countries (Nielsen and
that, for individuals, more education is asso- Alderson 1995). One cause of the higher in-
ciated with higher income, the distribution of equality in the United States may be the na-
educational attainment in a population is ture of race relations. Systematic differences
bound to have a compositional effect on in- in income between the two major racial
come inequality, as the greater dispersion of groups, Blacks and Whites, represent an ad-
educational attainment is translated, however ditional source of inequality that could
noisily, into greater dispersion of income elevate overall income inequality in this
(i.e., inequality). At an aggregate level, in- country above that of other societies at simi-
come inequality should be positively associ- lar levels of industrial development. To cap-
ated with a measure of the dispersion of edu- ture this, we use an indicator of racial dual-
cational attainment in the population. ism that measures income inequality in a
Chiswick and Mincer (1972), Chiswick county resulting from the difference in aver-
(1974), Hirsch (1978), and Jacobs (1985) all age incomes between Black families and
reported positive associations between in- White families. The indicator of racial dual-
come inequality and inequality of educa- ism is based on the same formula as sector
tional attainment. We investigate this hypo- dualism and is sensitive to the relative size
thetical association using an indicator for of the racial groups and the difference be-
educational heterogeneity that measures the tween them in average income. The racial
diversity (dispersion) of educational attain- composition of counties and the amount of
ment in the adult population of a county. We racial dualism vary considerably by region.5
predict that, controlling for development,
educational heterogeneity has a positive ef-
5In a study using 1980 data for North Carolina
fect on income inequality. counties, Nielsen and Warren (1995) found a U-
The compositional hypothesis concerning shaped relationship between overall income in-
the effect of the distribution of education on equality and racial dualism. The curvilinearity is
inequality has implications for comparisons related to regional differences within the state:
of our model across periods. To anticipate Counties with low racial dualism tend to be lo-
some of the empirical results, we find a posi- cated in the Mountain region and are character-
ized by relatively small Black populations and
tive association between educational hetero-
high inequality, while counties with high racial
geneity and the average educational attain-
dualism are mainly Coastal Plain counties with
ment in a county, so that counties with high
relatively large poor Black populations and high
educational heterogeneity scores also have income inequality. Counties with intermediate
high proportions of high school and college levels of racial dualism in the more developed
educated adults (see also Nielsen and War- Piedmont region have the lowest levels of income
ren 1995). There is also a positive associa- inequality.
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THE KUZNETS CURVE AND THE GREAT U-TURN 19
Therefore we can test the prediction that, bottom of the earnings distribution.6 This
controlling for other factors, racial dualism trend, together with the increasing proportion
has a positive effect on income inequality. of households headed by women, thus con-
According to an influential study by Wil- tributes to greater inequality in the distribu-
son (1980), the significance of race as a de- tion of family income. (2) Assortative mat-
terminant of economic achievement declined ing causes high-income wives to be married
in the postwar period. Others have argued to high-income husbands, amplifying the ad-
that the decline in the significance of race vantage of high-earning families when both
was reversed during the 1980s as a result of spouses are in the labor force. Bluestone
the government's retreat from antidiscrimi- (1990:28-32), while viewing other factors as
nation initiatives (Cancio, Evans, and more important causes of the rise in inequal-
Maume 1996). Insofar as systematic dis- ity in the 1970s, concurs that there is at least
crimination based on race has lessened over weak evidence for an influence of female la-
time, the importance of racial dualism as a bor-force participation. Thurow's and Blue-
component of overall income inequality stone's arguments lead to the prediction that,
should also decline. Therefore, we can test controlling for other factors, greater labor-
Wilson's general prediction that the effect of force participation by women is positively
racial dualism on income inequality is stron- associated with income inequality.
ger in earlier than in later periods against Another trend related to the changing role
the alternative prediction-that its effect has of women has been the increasing proportion
not decreased or has become stronger. of female-headed households. Levy and
Michel (1991:38-39) found that from 1973
to 1986, a period during which inequality in
The Great U-Turn
the distribution of family income was rising,
The upswing in inequality that began in 1969 the proportion of families headed by a single
for family income and in 1976 for earnings woman (among families with a head under
has generated a range of attempts to explain age 65) increased from 1 in 8 to 1 in 5. Inso-
this reversal in the long trend toward declin- far as female-headed families have lower-
ing inequality (Thurow 1987; Bluestone than-average incomes, this trend inflated the
1990; Levy and Michel 1991; Levy and proportion of poor families (see McLanahan,
Murnane 1992; Ryscavage, Green, and S0rensen, and Watson 1989 concerning the
Welniak 1992). The explanations have fo- implications of these trends for the "femini-
cused on a few potential causes: the chang- zation of poverty"). The discussion by Levy
ing role of women, the changing socioeco- and Michel (1991) leads us to expect that,
nomic situation of the elderly, declining in- controlling for other factors, the percent of
dustrial employment, and the international families headed by a single female is posi-
position of the United States. tively associated with inequality.
Commenting on the upswing in inequality Levy and Michel (1991:38) described the
in the distribution of earnings, Thurow (1987) upward movement of elderly families in the
was blunt in implicating the role of increased distribution of income between 1973 and
labor-force participation by women: 1986 as a result of the fact that this genera-
tion of elderly was the first to enjoy full ben-
What, then, is the cause of the rising inequality efits under the Social Security program. This,
in the distribution of earnings? There are two
combined with the indexing of Social Secu-
major forces: (1 ) intense international competi-
rity benefits, meant that the incomes of eld-
tive pressures, coupled with high unemploy-
erly families were increasing. During the pe-
ment, and (2) a rising proportion of female
workers. (P. 33) riod under consideration, most elderly fami-
lies joined the lower middle of the income
Thurow (1987:34-35) argued that increased distribution, while prior to that time they
female-labor force participation contributed
to the upswing in earnings inequality in two 6 Trends in the distribution of earnings of men
ways: (1) Because women are paid less and and women are discussed in Levy and Michel
more often work part-time, greater participa- (1991:6) and Bernhardt, Morris, and Handcock
tion in the labor force by women inflates the (1995).
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20 AMERICAN SOCIOLOGICAL REVIEW
were concentrated in the poorest segment of eties. The reduced demand for unskilled la-
the distribution. The historical ascent of the bor has tended to widen wage differentials
elderly in the income distribution during the between the skilled and unskilled. Where in-
two decades under investigation implies a stitutional resistance to wider wage differen-
systematic pattern of change in the relation- tials has been great (as in continental Eu-
ship at the county level between income in- rope) increased competition from low-skill
equality and the proportion elderly (mea- nations has tended to express itself in rising
sured as the percentage of the population unemployment. Where institutional resis-
over age 65). We predict, therefore, that (1) tance has been weak, as in the United States,
in the earlier period (1970), the relative size the result has been widening wage differen-
of the elderly population is positively associ- tials and greater income inequality. Wood's
ated with income inequality; and (2) in the (1994) argument suggests that, in different
later period (1990), the relative size of the institutional environments, high unemploy-
elderly population is negatively associated ment and high income inequality are alterna-
with inequality. tive responses to the reduced demand for un-
Bluestone and Harrison (1982) and Harri- skilled labor, not phenomena connected by a
son and Bluestone (1988) popularized the direct causal link. As we cannot do justice
term "deindustrialization" by tracing the far- here to the issues raised by Wood (1994), we
reaching consequences of the erosion of the test Thurow's simpler prediction that, at the
industrial base of the United States in recent county level, the unemployment rate has a
decades. Bluestone (1990:28-32) saw the de- positive effect on inequality.7
cline in manufacturing employment as one of
the main causes of two major trends since the
DATA AND MEASUREMENT
early 1970s: the increase in the low-wage
share of year-round full-time employment, We collected data from various sources for
and the increase in wage inequality. The de- the approximately 3,100 counties and county
cline in manufacturing employment contrib- equivalents of the United States in 1970,
utes to increased income inequality because 1980, and 1990. The actual number of coun-
the manufacturing sector is typically charac- ties varies from 3,103 to 3,141 depending on
terized by higher wages and a more equal the year. Sources for all variables are listed in
wage distribution than is the service sector, Table 1. Several variables, such as the mea-
so transfers of jobs from the manufacturing sure of income inequality, are based on math-
sector to the service sector produce more in- ematical transformations of the raw data.
equality as well as a larger proportion of low-
wage jobs. Ryscavage et al. (1992) identified
Income Inequality
the shift from goods-producing to service oc-
cupations as one of the main factors behind Our measure of inequality is the Gini coeffi-
the upswing in inequality. Although some re- cient. This is calculated from the distribution
cent empirical studies (e.g., Raffalovich of family income at the county level from the
1993) cast doubt on the importance of de- U.S. censuses of 1970, 1980, and 1990. The
industrialization in explaining the Great U- Gini coefficient, which varies between 0 per-
Turn, others (Lorence and Nelson 1993) cor- cent (perfect equality) and 100 percent (max-
roborate it. We measure manufacturing em- imum inequality), has the advantage that it is
ployment and investigate the Bluestone- comparable with inequality measures avail-
Harrison conjecture that manufacturing em- able cross-nationally (World Bank 1990) and
ployment has a negative effect on inequality. for the entire United States since 1947 (see
Thurow (1987:33) also implicated rising Figure 1). Gini coefficients were calculated
unemployment (which he viewed as a result, from the raw distributions, which are given
in part, of the weakening competitive posi- as the number of families in various income
tion of the United States) in the upswing in
inequality. More recently, Wood (1994) ar- 7 Thanks to an anonymous reviewer for bring-
gued that competition from low-skill nations ing Wood's work to our attention. Alderson is
has resulted in declining demand for un- currently pursuing these issues in the context of
skilled labor in advanced industrialized soci- work on globalization.
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THE KUZNETS CURVE AND THE GREAT U-TURN 21
Source a/Year
Income inequality (Gini x100) Adams 1992a Adams 1992b USBC 1991
Percent of females in the labor force Adams 1992a Adams 1992b USBC 1991
Percent of labor force in manufacturing USBC 1978 Adams 1992b USBC 1991
categories (15, 17, and 25 income categories median is estimated by fitting a Pareto dis-
in 1970, 1980, and 1990, respectively). The tribution to each interval, using formulas
procedure requires estimating the Lorenz given by Allen (1938:407-408) or Klein
curve, which plots the cumulative income (1962:150-54). Finally, the open-ended up-
shares on the vertical axis against the cumu- per category is treated in a special way, also
lative population shares on the horizontal based on fitting a Pareto distribution.8
axis. To estimate the income share of an in- Given estimated points on the Lorenz
come category, the average income of the in- curve (pi,Lj), where pi and Li represent th
come category must be evaluated. Simple- cumulative population and income shares for
minded procedures, like taking the category each income category i = 1, . . . k (where k
midpoint as the average income and dealing is the number of income categories), the
with the open-ended top category by discard- value RL of the Gini coefficient is calculated
ing it or taking its lower bound as the aver- using the formula given by Nyga'rd and
age, yield misleading Gini estimates. Instead, Sandstr6m (198 1:292, eq. 8.10):
we adapt a procedure used by the U.S. Cen-
sus Bureau, the Pareto-linear procedure. This RL = Pk-1_ XlL= ( I -p) ( 1 )
is based on Pareto's (1897) observation that
for upper income levels a plot of the loga-
Measures of Dualism
rithm of the number of recipients with in-
come greater than a given level of income Measures of dualism are special cases of in-
against the logarithm of income tends to equality measures. We use an approach based
yield a straight line (Miller 1966:213-21; on the Gini coefficient (Nielsen 1994). For
Spiers 1977; U.S. Bureau of the Census farm/nonfarm sector dualism, the Gini coef-
1980; Welniak 1988; also see Parker and
Fenwick 1983). The Pareto-linear procedure
8 The details of the algorithm, which also
estimates the average income in the income
handles special cases like empty categories and
category containing the median, and catego- improbable Pareto slope estimates, are embodied
ries below, as the category midpoint. The av- in a computer program PRLN.PAS in the Pascal
erage income of income categories above the language developed by Nielsen.
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22 AMERICAN SOCIOLOGICAL REVIEW
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THE KUZNETS CURVE AND THE GREAT U-TURN 23
ficient estimates. The fixed effects model We carried out preliminary OLS regression
(FEM) and random effects model (REM) are analyses of the models giving careful atten-
commonly used estimation strategies de- tion to outliers and influential cases, using
signed to correct for unmeasured county-in- the various regression diagnostics available
variant factors. Both methods address the in the SYSTAT statistical program (Belsley,
heterogeneity problem by "simulating" the Kuh, and Welsch 1980; Bollen and Jackman
unmeasured county-invariant factors as state- 1985b; Wilkinson 1990a:154-56, 1990b).
specific intercepts. The model to be esti- Our strategy was to eliminate cases that ap-
mated can be written in general as peared unduly influential on the basis of a
combination of criteria (Studentized residual,
Yit = ao + Ik:1 PkXkit + al + -it (4) Cook's D, influence in partial regression
plots). We excluded from the analysis 149
counties
where i = 1, . . . ,N and t = 1, . . . ,Ti, and by in 1970 (4.7 percent of the 1970
assumption E[eit] = 0 and Var[eit] = aQ2.data Theset), 112 counties in 1980 (3.5 percent
subscript i denotes the state and t denotes a of the 1980 data set), and 137 counties in
particular county within a state. T1 denotes 1990 (4.4 percent of the 1990 data set). Ex-
the number of observations (counties) in clusion of these cases affected the substan-
state i, the indexing reflecting the unequal tive results only in 1980. The effect of popu-
numbers of counties across states. In equa- lation density changed from significantly
tion 4, a0 represents the general intercept and negative to significantly positive when influ-
ai represents the state-specific intercepts ential cases were removed, consistent with
summarizing the effects of unmeasured fac- the results for 1970 and 1990. The effect of
tors that affect counties homogeneously the percent of the population over age 65
within a state. The FEM treats the state-spe- changed from significantly negative to non-
cific intercepts ai as fixed effects to be esti-significant, consistent with the expected evo-
mated, equivalent to the regression coeffi- lution of this effect over time from positive
cients of indicator variables for states, while to negative. To assess the comparison of co-
the REM treats ci as a random component ofefficients over time implied by some of the
the error term. The FEM is equivalent to ap- theoretical predictions, we performed one-
plying OLS regression to the data trans- tailed significance tests for the three possible
formed by subtracting the state-specific differences across time points (1980 - 1970,
means from the original data, while the REM 1990 - 1980, and 1990 - 1970). 10 Finally, we
is equivalent to subtracting only a fraction of checked the matrices of independent vari-
the state specific-means (Rosenfeld and Niel- ables for severe collinearity and found
sen 1984; Hsiao 1986:36). none.1 l
For methodological and substantive rea-
sons, we present the REM estimates of the found in Judge et al. (1980:336-38), Hsiao
regression models. First, the FEM estimation (1986:41-7), and Greene (1990:480-98). We es-
algorithm can be interpreted substantively as timated the REM models with the LIMDEP pro-
"throwing away" for estimation purposes all gram (Greene 1992, chap. 29). The OLS regres-
sions and diagnostics for influential cases were
between-state variation present in the data.
carried out with SYSTAT (Wilkinson 1990a).
The FEM procedure therefore consumes
The figures were produced with SYGRAPH
much information. Second, the REM has (Wilkinson 1990b).
been shown to be asymptotically efficient 10 The OLS results, correlations and basic sta-
relative to the FEM (Tuma and Hannan tistics, and significance tests for comparisons of
1984).9 coefficients between time points are not pre-
sented. These tables are available from the au-
9 The REM, FEM, and OLS estimation proce- thors on request.
dures yielded similar substantive patterns. Fur- l The minimum tolerance value found for all
thermore, results indicate that state-specific fac- (OLS) estimated coefficients was .195 (for fe-
tors represent only a small proportion of the error male-headed households in 1990), corresponding
variance in the fully specified models, suggesting to a variance inflation factor of 5.13, well below
that the FEM is not needed with these data (see the cutoff of 10 often taken as indicative of ex-
below and footnote 16). Further discussion of cessive collinearity (Neter, Wasserman, and
fixed-effects and random-effects models can be Kutner 1990:408-11).
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24 AMERICAN SOCIOLOGICAL REVIEW
Table 2. Unstandardized GLS Coefficients for Regression of Income Inequality (Gini x 100) on Se-
lected Independent Variables: U.S. Counties, 1970
*p < .05 **p < .01 ***p < .001 (two-tailed tests)
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THE KUZNETS CURVE AND THE GREAT U-TURN 25
Table 3. Unstandardized GLS Coefficients for Regression of Income Inequality (Gini x 100) on Se-
lected Independent Variables: U.S. Counties, 1980
*p < .05 **p < .01 ***p < .001 (two-tailed tests)
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26 AMERICAN SOCIOLOGICAL REVIEW
Table 4. Unstandardized GLS Coefficients for Regression of Income Inequality (Gini x 100) on Se-
lected Independent Variables: U.S. Counties, 1990
1990 this pattern is reversed so that among pected from Kuznets's ([1955] 1965) conjec-
the most prosperous counties greater median ture concerning the greater range of status in
income is associated with increased income urban settings compared to rural settings.
inequality. The effect is positive in Model 4 even though
Model 2 includes the entire set of variables the zero-order correlation is negative (-.296).
relating to economic development. Model 3 The effect of population density on inequal-
introduces, in addition to logged median ity remains positive in later years (Tables 3
family income, the variables involved in the and 4). The impact of the shift of the labor
debate surrounding the upswing in inequal- force away from agriculture is captured by
ity and the "disappearing middle-class" sector dualism and percent farm population.
(Levy and Michel 1991). Model 4 is the full The classical expectation is that sector dual-
model that includes all the independent vari- ism has a positive effect on income inequal-
ables. We focus on Model 4. ity because it represents inequality resulting
In Table 2, Model 4, the coefficient for from the difference in average income be-
population density-our measure of urban- tween agriculture and the rest of the econ-
ization-is significant and positive, as ex- omy, and that percent farm population has a
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THE KUZNETS CURVE AND THE GREAT U-TURN 27
60-
40
3< 0
3.0 3 .5 . . . . . . . .
0'
60
S 0
20-lll_ _. Xll-
3.0 3.5 4.0 4.5 5.0 3.0 3.5 4.0 4.5 5.0
cc ~ ~ ~ C C -
Median Income (log 10), 1970 Median Income (log 10), 1980
Note: Nonparametric regression curves fitted by distance weighted least squares (DWLS) with tension
.05. The bottom-right graph compares the nonparametric regression curves for the three years.
negative effect because it captures the effect labor-force shifts between the agricultural
of low income inequality in the agricultural and nonagricultural sectors have become a
sector (Nielsen 1994). The regression results minor determinant of within-county income
fall short of this expectation, as both vari- inequality in recent decades.
ables have a significant positive effect on in- The coefficient for the rate of natural in-
come inequality in 1970. In 1980 and 1990, crease in population is significantly positive
the effect of sector dualism vanishes (the in 1970, nonsignificant in 1980, and signifi-
1970-1980 decline is significant), while the cantly positive again in 1990. The positive
coefficient for percent farm population re- effect is in the predicted direction, as the rate
mains significant and positive. This ambigu- of natural increase is assumed to affect in-
ous pattern is consistent with the view that come inequality directly by affecting the sup-
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28 AMERICAN SOCIOLOGICAL REVIEW
ply of labor and indirectly as a proxy for gen- ent ways for the three periods. We conclude
eralized dualism. The irregular pattern over that racial dualism remains a strong compo-
time, however, was not predicted, as a more nent of overall income inequality in contem-
monotonic decline in the coefficient over porary U.S. society, despite a small decline
time would be expected as counties move in its impact.
further away from their demographic transi-
tions.
The Great U-Turn
Educational heterogeneity has a strong
positive effect on income inequality in 1970: Thurow (1987) confidently implicated in-
The greater the heterogeneity of educational creased female labor-force participation as a
attainment in a county, the greater the in- major culprit in the recent upswing in in-
equality of the distribution of income. The equality. Thurow predicted a positive effect
positive effect of educational heterogeneity of female labor-force participation on income
emerges in the multiple regression equation inequality. The coefficient for female labor-
where other variables are controlled, even force participation in Model 4 for 1970 is not
though in 1970 the zero-order association of significant (Table 2). For both 1980 and 1990,
this variable with income inequality is however, the effect of female labor-force par-
strongly negative (-.455). This contrast is ticipation is strongly significant and nega-
consistent with the pattern of a positive asso- tive-the opposite of Thurow's expectation.
ciation between educational heterogeneity It seems that the net impact of the increase in
and mean educational attainment (and there- labor-force participation by women, which
fore with economic development), which has been considerable,'3 has been to create
confounds the positive effect of educational more families with total incomes closer to the
heterogeneity on inequality with the negative center of the income distribution, lessening
effect of economic development in the zero- the trend toward greater inequality caused by
order relationship. The positive effect of edu- other aspects of social change during the pe-
cational heterogeneity on income inequality riod (Ryscavage et al. 1992).
increases significantly after 1970 (the in- Another aspect of the changing role of
crease between 1980 and 1990 is particularly women, the percent of households headed by
pronounced), while the zero-order correlation females, has more disturbing consequences.
changes from negative to positive This variable has a strongly significant posi-
(-.455, -.168, and .343 in 1970, 1980, and tive effect on income inequality in 1970, and
1990, respectively). The correlation between its effect increases in both magnitude and
educational heterogeneity and median family significance in 1980 and 1990. This suggests
income decreases over the period (.676, .474, a substantial role for this variable in the up-
and .181). This pattern is consistent with an swing in income inequality since 1970. The
increasing impact of educational heterogene- effect of the size of the elderly population
ity on income inequality combined with the (percent over age 65) exhibits a more com-
spread of educational heterogeneity from plex pattern over time. In 1970 (Table 2), the
centers of development to outlying areas. percent over age 65 has a strongly significant
Wilson's (1980) argument regarding the positive effect on income inequality, reflect-
declining significance of race implies that ing the fact that elderly families were a rela-
the effect of racial dualism on income in- tively disadvantaged segment of the income
equality should wane in more recent periods distribution. The effect in 1980 (Table 3) is
as U.S. society moves further away from ra- nonsignificant, and in 1990 (Table 4) the ef-
cial discrimination. In fact, racial dualism fect is strongly significant and negative. (The
has a strong significant and positive effect on decline in the value of the coefficient be-
income inequality in 1970, and the effect tween 1970 and 1990 is strongly significant.)
shows no sign of disappearing in 1980 and This reversal in the direction of this effect is
1990, although there is a statistically signifi- consistent with the scenario proposed by
cant decline in the coefficient between 1980
and 1990 (from .161 to .115). This consis- 13 Average female labor-force participation is
tency is even more remarkable given that ra- 36.7, 44.8, and 52.0 percent in 1970, 1980, and
cial dualism is measured in somewhat differ- 1990, respectively.
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THE KUZNETS CURVE AND THE GREAT U-TURN 29
Levy and Michel (1991), who described the state-specific manner (Jacobs 1985). The
average elderly family as moving up in the relative impact of the state-specific compo-
income distribution in the 1970s and 1980s nent of the error term can be estimated by
because of the increasing impact of the So- the rho coefficient shown for each regression
cial Security program on cohorts reaching re- model in Tables 2, 3, and 4. Rho is a mea-
tirement age during that period and the in- sure of the correlation among the error terms
dexing of Social Security benefits. of counties due to the presence of the state-
Inclusion of the percentage of the labor specific component. Thus a high value of rho
force employed in manufacturing in Model 4 indicates that unmeasured state-specific fac-
permits an evaluation of the deindustrial- tors have a strong impact on the variation in
ization argument of Bluestone and Harrison income inequality among counties.15 The
(1982) and Harrison and Bluestone (1988). pattern is similar for each census year: The
The relative size of the manufacturing labor estimated value of rho is highest in Model 1,
force has a strongly significant negative ef- which includes only logged median income
fect on income inequality in 1970 (Table 2). and is therefore most likely to be under-
This negative effect remains stable in 1980 specified, with values for Model 1 of .301,
and 1990, providing strong support for the .492, and .459 in 1970, 1980, and 1990, re-
deindustrialization thesis. spectively. As explanatory variables are add-
Unemployment is another aspect of the ed in Models 2, 3, and 4, the estimated value
deindustrialization argument. In the simple of rho decreases, indicating that the unmea-
version of this argument, international com- sured state-specific component is progres-
petition is viewed as generating unemploy- sively accounted for by variables included in
ment, which produces greater inequality in the models. In Model 4, values of rho are
the income distribution (Thurow 1987; but .069, .169, and .087 for the three census
see Wood 1994). The percent unemployed in years. These small estimated values of rho
Model 4 yields ambiguous results. The effect suggest that variables in the full regression
of the unemployment rate is nonsignificant in model (Model 4) capture most of the state-
1970, but in 1980 it is negative and strongly specific factors (including those related to
significant, suggesting that unemployment state-level policy outcomes) that affect in-
reduces income inequality, contrary to the come inequality within counties.16
prediction. In 1990, however, the effect of un-
employment is again nonsignificant.'4
CONCLUSION AND DISCUSSION
For the full regression model (Model 4) R2
ranges from .750 in 1980 to .807 in 1970, We have examined the processes affecting
suggesting that these independent variables inequality in the distribution of income in
taken together are powerful determinants of U.S. counties in 1970, 1980, and 1990 in the
variation in income inequality across U.S. hope of gaining insights into two major his-
counties. torical trends that characterize industrialized
societies in the twentieth century: the declin-
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30 AMERICAN SOCIOLOGICAL REVIEW
ing level of income inequality that has mark- agreement with the expectation of most ob-
ed industrial development during the later servers, however, the percentage of female-
part of the Kuznets curve, and the upswing headed households is a strong contributor to
in inequality since the early 1970s. We have income inequality. The effect on inequality
examined the impact on income inequality of of the percent of the population over age 65
two sets of factors: variables related to the tracks historical changes in the position of
impact of industrial development on income this group in the income distribution that
inequality in the context of the Kuznets took place over the two decades under
curve, and variables invoked in the more re- study-from a positive effect in 1970, when
cent debate surrounding the upswing in in- the elderly were a much more disadvantaged
equality. group than today, to a negative effect in
Our regression models of income inequal- 1990, when the elderly assumed a more cen-
ity, which control for unmeasured state-spe- tral position in the income distribution. The
cific effects with REM estimation, reveal percent of the labor force in manufacturing
several distinct patterns. Results suggest the has a strong negative effect on income in-
continued importance of the Kuznetsian pat- equality at all time points, consistent with the
tern of declining income inequality with eco- deindustrialization argument, while the ef-
nomic development, even though in recent fect of the unemployment rate on inequality
years the association has become increas- shows no clear pattern.
ingly convex to the origin, indicating increas- The declining importance of some of the
ing income inequality in the most prosperous factors traditionally associated with the im-
counties. Controlling for economic develop- pact of industrial development on income in-
ment, urbanization has a positive effect on equality (such as sector dualism and popula-
inequality, supporting an early suggestion by tion growth associated with the demographic
Kuznets. Sector dualism effects associated transition) and the increasing importance of
with labor-force shifts from agriculture to new factors (particularly educational hetero-
other sectors of production have a minor im- geneity and variables representing new liv-
pact on variation in county-level income in- ing arrangements, such as female-headed
equality during the period investigated. The households and female labor-force participa-
rate of natural increase in population, which tion) suggest that the determination of in-
is strongly associated with inequality in come inequality in advanced industrial soci-
cross-national data, is also a weak predictor eties is the outcome of a new set of processes.
of income inequality in counties of an indus- Our analyses provide a glimpse of some of
trial society during the later part of the twen- the features of this new causal regime.
tieth century. However, heterogeneity of edu- Clearly, further research is needed to fully
cational attainment has an increasingly elucidate the nature of distributional pro-
strong positive impact on income inequality cesses in advanced industrial society.
from 1970 to 1990, suggesting a new role for
the education distribution in determining in- Franfois Nielsen is Associate Professor of Soci-
come inequality in advanced industrial soci- ology at the University of North Carolina at
Chapel Hill. He is continuing research with
eties. Racial dualism, which measures the
Arthur Alderson on the relationship between in-
amount of inequality resulting from the dif-
come inequality and development, using both
ference in average income between Blacks
cross-national data and data on United States
and Whites, has a surprisingly strong and counties. He is also doing research on simulation
persistent effect on income inequality during models of income distribution, the emergence of
the period studied. regions in the European Union, sociobiology, and
With respect to variables that have been the influence of Protestantism on the early devel-
invoked in the Great U-Turn debate, our re- opment of industrial capitalism in Europe.
sults exonerate at least one variable sus-
Arthur S. Alderson is a Ph.D. student in sociol-
pected of contributing to the upswing in in- ogy at the University of North Carolina at Chapel
equality since 1970: Instead of the predicted Hill. In the fall of 1997, he will join the faculty at
positive effect of female labor-force partici- Indiana University in Bloomington. In addition to
pation on income inequality, this variable has his continuing work with Franmois Nielsen on in-
an increasingly strong negative effect. In come inequality, his research interests include
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THE KUZNETS CURVE AND THE GREAT U-TURN 31
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32 AMERICAN SOCIOLOGICAL REVIEW
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THE KUZNETS CURVE AND THE GREAT U-TURN 33
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