The Kuznets Curve and the Great U-Turn: Income Inequality in U.S.

Counties, 1970 to 1990

Author(s): François Nielsen and Arthur S. Alderson
Source: American Sociological Review, Vol. 62, No. 1 (Feb., 1997), pp. 12-33
Published by: American Sociological Association
Stable URL: http://www.jstor.org/stable/2657450
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 THE KUZNETS CURVE AND THE GREAT U-TURN:
INCOME INEQUALITY IN U.S. COUNTIES, 1970 TO 1990*

Fransois Nielsen Arthur S. Alderson

University of North Carolina, University of North Carolina,
Chapel Hill Chapel Hill

We examine the determinants of inequality in the distribution of family in-

come in approximately 3,100 counties of the United States in 1970, 1980,
and 1990. Such a study provides a "window" on global trends in social in-
equality during the period, which spans the tail end of the Kuznets curve and
the more recent upswing in income inequality. Results from randonm-effects
regression models that control for unmeasured heterogeneity among states
reveal the continued importance of the Kuznetsian pattern of declining in-
equality with economic development, a positive effect of urbanization on in-
equality, a declining positive impact of sector dualism, an increasing posi-
tive effect of educational heterogeneity, and a persistent effect of racial du-
alism. Several variables associated with the recent upswing in inequality
have significant effects: female labor-force participation (negative), female-
headed households (positive), percent of the population over age 65 (changes
from positive to negative over the period), manufacturing employment (nega-
tive), and unemployment (ambiguous). We also discuss methods of estimat-
ing the Gini coefficient for income inequality at the county level and mea-
sures of sector (farm/nonfarm) dualism, racial (Black/White) dualism, and
educational heterogeneity.

he evolution of social inequality in the
course of human history is a central
topic of stratification research (Lenski
[1966] 1984). While most sociologists view
social inequality as multidimensional, in-
volving power and prestige as well as in-
come, inequality in the distribution of in-
come is a tangible and measurable aspect of
inequality. Two major trends in inequality
have characterized industrial and developing
societies in the twentieth century: the Kuz-
* Direct correspondence to Frangois Nielsen,
Department of Sociology, University of North
Carolina, Chapel Hill, NC 27599-3210 (francois_
nielsen@unc.edu). An early version of this paper
was presented at the annual meeting of the
American Sociological Association in Washing-
ton, DC., August 1995. Partial support for this re-
search was provided by a summer stipend from
the Institute for Research in Social Science at the
University of North Carolina at Chapel Hill. We
thank Gerhard Lenski, Rachel Rosenfeld, three
ASR reviewers, and the ASR editors for their help-
ful advice.
nets curve and the Great U-Turn. Kuznets
(1953, [1955] 1965) noted that income in-
equality has an inverted-U shaped relation-
ship with economic development. Using data
for a handful of industrial societies in the
nineteenth and twentieth centuries, he
showed that income inequality initially in-
creased with industrial development, peaked
and leveled off, then declined with further
development, with the exact timing of the de-
cline differing somewhat across societies. In
the United States, inequality peaked in the
late 1800s and did not begin declining until
the late 1920s. Lampman (1962) found that,
in the United States, a strikingly similar
curve depicts the evolution of inequality in
the distribution of wealth, as distinct from
income, with the gap in the share of wealth
between rich and poor also declining sharply
between the late 1920s and the middle of the
century. Later research largely confirmed the
Kuznets-Lampman findings for the United
States (Williamson and Lindert 1980:281).
Lindert and Williamson (1985:345, fig. 2)

12 American Sociological Review, 1997, Vol. 62 (February: 12-33)

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THE KUZNETS CURVE AND THE GREAT U-TURN 13

.410- 55

Share of top
(personal in

.388 - Gini x 100

(money income) ef

0 5

.366

= .344-
45@

Share of top fifth

.322 (money income)

.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
experienced by other industrial societies in
the twentieth century as well.'
The recent experience of industrial societ-
ies, however, suggests an added twist to
Kuznets's depiction of the evolution of in-
equality associated with development.
Williamson and Lindert (1980:5) saw in-
equality as declining in the United States
from the late 1920s to about 1950. The next
two decades were characterized by a "curi-
ous stability" at a relatively low level of in-
equality. The period since 1970 has been
characterized by a resurgence of income in-
equality in U.S. society severe enough to be
christened the "Great U-Turn" by Harrison
I Despite isolated skepticism (Papanek 1978),
the Kuznets curve has also been documented for
contemporary developing societies (Lecaillon et
al. 1984; Gagliani 1987; Nielsen 1994; Nielsen
and Alderson 1995).
and Bluestone (1988), who place the start of
the upswing in inequality in 1969 for the dis-
tribution of family income and in 1976 for
the distribution of wages and salaries
(1988:7, fig. 1.3; 119, fig. 5.2). The resump-
tion of an upward trend in income inequality
has been confirmed by several observers
(Thurow 1987; Bluestone 1990; Levy and
Michel 1991; Levy and Murnane 1992; Mor-
ris, Bernhardt, and Handcock 1994). Figure
1 shows the evolution of inequality in the
distribution of personal or money income
among families in the United States from
1929 to 1992 (inequality is measured by the
Gini coefficient or as the share of aggregate
income accruing to the top quintile). The tail
end of the decline in inequality associated
with the Kuznets curve and the Great U-Turn
are both clearly visible. A similar upswing
in inequality has also been documented for
the distribution of earnings for men in
Canada, Sweden, Australia, and West Ger-

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 14 AMERICAN SOCIOLOGICAL
many (Green, Coder, and Ryscavage 1992),
suggesting that the trend is international.
The long-term decline in inequality asso-
ciated with industrial development repre-
sented by the Kuznets curve and the more
recent reversal of this trend in the Great U-
Turn have been attributed to diverse causes.
Indeed, the two historical episodes are dis-
cussed in distinct literatures. Most theories
of the causes of the inverted-U pattern of
the Kuznets curve have been based on cross-
national comparisons. In contrast, explana-
tions of the Great U-Turn have been based
largely on the U.S. domestic context. We
combine these two theoretical threads in a
model of inequality that accounts for both
historical episodes. We then investigate the
model's predictions using census data on in-
come inequality in U.S. counties from 1970
to 1990.
INCOME INEQUALITY IN
U.S. COUNTIES IN THE LATE
TWENTIETH CENTURY
The evolution of income inequality has tra-
ditionally been investigated using historical
data for individual countries (as in the admi-
rable survey of the United States from
colonial times to the 1970s by Williamson
and Lindert 1980), or using cross-sections of
contemporary countries (see the literature
cited in Nielsen 1994 and Nielsen and Alder-
son 1995). The relative scarcity of compa-
rable cross-national data over time has been
a major problem in prior research (Gagliani
1987). Observations often have been too few
to yield strong inferences (but see Nielsen
and Alderson 1995). We avoid that problem
by studying inequality in the distribution of
income in approximately 3,100 counties of
the United States over three decennial cen-
sus periods from 1970 to 1990. Using coun-
ties as units of analysis makes it possible to
examine several thousand income distribu-
tions at three points in time and over a wide
range of social contexts.
Advantages of Counties
Although U.S. counties during the 1970 to
1990 period enjoyed levels of development
that would place many counties among the
most highly developed societies if they were
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REVIEW
independent political entities, they vary con-
siderably in economic infrastructure, demo-
graphic profile, and level of prosperity.
Counties, as opposed to cities or SMSAs,
represent the complete range of social land-
scapes, from entirely rural to dense metro-
politan areas. If one were to plot the 3,100
counties at the three time points on a graph
relating income inequality to development,
the 9,300 data points would span a wide
"window" on the rightmost segment of the
Kuznets curve. On the right side of the graph,
the more prosperous counties in later periods
might show evidence of the upswing in in-
equality corresponding to the Great U-Turn.
On the left of the graph, the least prosperous
counties in the earliest periods might still
trace the characteristic hump of the Kuznets
curve, as Braun (1991:247, fig. 6.3) claimed
for non-southern counties as late as 1980.
Using counties rather than nations as units
of analysis has methodological advantages.
Procedures of data collection and measure-
ment used by the Census Bureau are the
same across units, at least at the same time
point, and when procedures do differ, they
are well documented. In contrast, cross-na-
tional data on income inequality are notori-
ously delicate to compare (Menard 1986;
Hoover 1989). Furthermore, many legal, edu-
cational, and political institutions are shared
by counties. These extraneous effects there-
fore will not contribute to the noise con-
founding the effects of the structural vari-
ables of interest.
Finally, counties observed at multiple time
points constitute a time series of cross-sec-
tions that incorporates variability both across
units and over time. A data set with such a
panel structure is potentially amenable to the
use of powerful statistical techniques (based
on pooling the cross-sections) that can in-
crease efficiency of estimation (in the case
of cross-sectional linear models) and can cor-
rect for estimation inconsistency (in the case
of models incorporating the lagged depen-
dent variable).2
2 Pooling county data over time is part of our
future research agenda. Here we use a classical
cross-sectional design for each of the three cen-
sus years, using pooling techniques to control for
the impact of unmeasured characteristics of
states.
 THE KUZNETS CURVE AND THE GREAT U-TURN 15
Limitations of Counties
Counties are subject to a number of potential
limitations:
First, because counties are subunits of a
single national entity, they are more homog-
enous and cannot cover as wide a range of
variation in levels of development, social
conditions, institutions, and culture as a
cross-national sample.
Second, county boundaries may not de-
limit autonomous and internally integrated
social systems with respect to distributional
processes. For example, following suburban
expansion, the historical boundaries of a
county may incorporate highly prosperous
housing developments and low-income rural
areas. The resulting high level of inequality
does not necessarily indicate the level of in-
equality in the county viewed as a social sys-
tem. These areas may not interact much at
all-they are juxtaposed within a boundary
as a result of contingent processes. The theo-
ries of income inequality discussed here,
however, do not require that the population
constitute a bounded system of interactions
or an autonomous social or economic sys-
tem. The theoretical mechanisms discussed
later typically associate a certain composi-
tion of the population with respect to educa-
tion, sector of economic activity, vital rates,
and so on, with a certain level of income in-
equality. They are "compositional" theories
that treat a population purely as an aggregate
of individuals. These theories can be tested
with data on counties (or any other units with
differing compositions on the relevant vari-
ables) and would not be "fooled" by the jux-
taposition in the example as long as relevant
variables are measured.
A third potential problem with county data
is that the population bases of data collected
by official agencies may differ. For example,
while the household census provides data on
the population residing in the county, other
data sources report characteristics of the
population working in the county. The dis-
crepancy between the two population bases
can be considerable for counties in or near
metropolitan areas where substantial num-
bers of residents commute to work across
county boundaries. We circumvent this po-
tential difficulty by using only data based on
the population of residence.
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Finally, one aspect of income distribu-
tion-the political process broadly defined-
is poorly captured at the county level. Al-
though some aspects of the political process,
such as the structure of the local elite, have
been studied with county data (Tomaskovic-
Devey and Roscigno 1996), political deci-
sions affecting the distribution of income are
made for the most part at levels other than
the county level, especially in more recent
periods. Counties, however, are subsets of
larger units, the states, that do have a sub-
stantial degree of political autonomy and can
affect the distribution of income in several
ways (Jacobs 1985). Fortunately, state-level
effects can be controlled after a fashion. In
the analyses reported below, we specify a
random state-specific component of the er-
ror term to simulate the overall impact of un-
measured state-level variables on income in-
equality in counties.
SOURCES OF INCOME INEQUALITY
Lindert and Williamson (1985) have pro-
posed a comprehensive economic theory of
the evolution of income inequality during de-
velopment based on the historical experi-
ences of Britain and the United States from
the nineteenth century to the present. They
identified three prime movers (i.e., mostly
exogenous factors) of income inequality: (1)
"rise and fall in sectoral imbalances in total
factor productivity rates"; (2) "rise and fall
of labor-force growth (e.g., due to demo-
graphic transition)"; (3) "lagged acceleration
of skills deepening" (pp. 368-69). In their in-
terpretation, these three factors are treated as
intermediate variables affected by more spe-
cific measurable social changes. Labor-force
growth, for example, may be affected by the
demographic transition or immigration; the
spread of education contributes to "skills
deepening." In previous work (Nielsen 1994;
Nielsen and Alderson 1995) we modified the
Lindert and Williamson (1985) model by in-
corporating the main mechanism of sector
dualism discussed by Kuznets ([1955] 1965)
and developed a "core" model of the rela-
tionship between income inequality and de-
velopment. Discussions of the Great U-Turn
beginning in the early 1970s also generated
theoretical conjectures and empirical inves-
tigations of the causes of the upswing in in-
 16 AMERICAN SOCIOLOGICAL
equality. These two traditions-research on
the Kuznets curve and the debate surround-
ing the Great U-Turn-have evoked sets of
explanatory factors that are largely nonover-
lapping. We also investigate a potential fac-
tor affecting inequality, racial dualism, which
is central to the historical experience of the
United States and not usually discussed in
the other research traditions.
Income Inequality and Industrial
Development
The Kuznets curve postulates a negative re-
lationship between inequality and develop-
ment for societies at relatively high levels of
development. Williamson (1991:8) noted that
this declining portion of the Kuznets curve
is empirically robust and well documented.
The level of development of most counties
in the period from 1970 to 1990 corresponds
to this declining segment of the Kuznets
curve. In our empirical analyses, we use me-
dian family income as the measure of eco-
nomic development because it is a close sub-
stitute for gross domestic product per capita,
a measure commonly used in cross-national
research. We therefore predict that during the
period under study, there is a negative rela-
tionship between income inequality and level
of development as measured by median fam-
ily income.
Kuznets ([1955] 1965:264) speculated that
income inequality in developing societies is
typically higher in urban centers (with their
enormous diversity of social conditions rang-
ing from the destitute to wealthy industrial-
ists) than in rural areas (which he viewed as
populated by many small economic units of
similar size and therefore inherently more
egalitarian). Kuznets's conjecture, to the ex-
tent that it can be applied to the urban-rural
contrast in developed societies, predicts a
positive association between income inequal-
ity and urbanization. The issue is compli-
cated by the positive correlation between
urbanization and economic development.
Highly urbanized counties are also likely to
be more economically prosperous and there-
fore have less inequality because of the nega-
tive relationship between inequality and de-
velopment. In zero-order associations, any
independent positive effect of urbanization
on inequality is likely to be overshadowed by
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REVIEW
the strong negative association between in-
equality and development. Therefore, the hy-
pothesis involving urbanization specifies a
control for development. We use population
density as a measure of the urbanization of a
county. Kuznets's ([1955] 1965) discussion
implies that, controlling for economic devel-
opment, urbanization (measured as popula-
tion density) has a positive effect on income
inequality.
Kuznets' ([1955] 1965:269-75) explana-
tion of the inverted-U pattern stressed the
dualism between the traditional (agricultural)
and modern (nonagricultural) sectors of a de-
veloping economy. A society at an early
stage of industrialization is characterized by
the coexistence of a small modern industrial
sector with high productivity and wages and
a large traditional agricultural sector with
low productivity and wages. As an increas-
ing proportion of the labor force moves from
the low-income traditional sector to the high-
income modern sector, income inequality in-
creases, levels off, and then decreases. This
occurs as an automatic numerical conse-
quence of the population transfers between
sectors (Robinson 1976; Lydall 1977:205--
25; Fields 1980; Lecaillon et al. 1984:16-22;
Nielsen 1994: 659, fig. 2).
The degree of inequality due to the differ-
ence between the agricultural and nonagri-
cultural sectors in average income is called
sector dualism. Sector dualism is a function
of both the difference between sectors in av-
erage income and the relative size of the sec-
tors (Lecaillon et al. 1984). Using cross-na-
tional data, Nielsen (1994) and Nielsen and
Alderson (1995) showed that sector dualism
is significantly associated with overall in-
come inequality and partially explains the
inverted-U pattern of the Kuznets curve. In
cross-national data, the impact of sector du-
alism on inequality is greatest at relatively
low levels of development. Developed soci-
eties, including the United States, have low
levels of sector dualism, in part because the
agricultural sector is no longer a substantial
fraction of the labor force (Lecaillon et al.
1984; Nielsen 1994:660, fig. 3). We use a
measure of sector dualism based on a com-
parison of farm and nonfarm earnings to es-
timate dualism's effect on income inequality
at the county level. Given the high level of
development of counties in 1970 (and later)
THE KUZNETS CURVE AND THE GREAT U-TURN 17
and their relative homogeneity compared to
a cross-section of countries, we do not ex-
pect the effect of sector dualism to be as
strong as that found in cross-national data.
Therefore, to the extent that sector dualism
is still a determinant of inequality in the pe-
riod under study, we predict that: (1) sector
dualism has a positive effect on overall in-
come inequality, and (2) the positive effect of
sector dualism decreases over time.
Sector dualism measures the amount of
overall income inequality that results from
the difference in average income between
sectors. The distribution of the population
among sectors can also affect overall in-
equality to the extent that inequality differs
within sectors. If, as Kuznets ([1955] 1965:
264) believed, inequality is lower in the ag-
ricultural sector than in the nonagricultural
sector, it follows that a relatively large agri-
cultural sector gives more weight to the more
equal sector and results in lower overall in-
equality (Nielsen 1994). Therefore, we con-
trol for the size of the agricultural sector in
our model (measured as percent farm popu-
lation) and predict that, controlling for sec-
tor dualism, size of the agricultural sector
has a negative effect on income inequality.
The demographic transition, a major fea-
ture of industrial development in which the
early reduction in the death rate is not offset
until later by a decline in the birth rate, has
been implicated as an underlying cause of the
inverted-U shape of the Kuznets curve. The
position of a society along the demographic
transition is indicated by the rate of natural
increase in the population, calculated as the
difference between the birth rate and the
death rate (Nielsen 1994:663, fig. 4). Ahlu-
walia (1976) found a strong positive associa-
tion between a population's rate of natural
increase and income inequality in cross-na-
tional data.3 Pursuing an earlier suggestion
of Kuznets ([1955] 1965:277-78), Lindert
and Williamson (1985:368-69; Williamson
1991:25-27) argued that population growth
tends to increase income inequality by-in-
3 Other researchers have documented an asso-
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
increase (Bollen and Jackman 1985a; Simpson
1 990).
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creasing the supply of labor, especially of
unskilled labor. Nielsen (1994) showed that
the rate of natural increase has a positive ef-
fect on inequality in cross-national data and
attributed part of this effect to the fact that
population growth is also a proxy measure of
generalized dualism; that is, the degree of
general social heterogeneity resulting from
the uneven diffusion of industrial technology
and culture (Lenski, Lenski, and Nolan
1991:401). The rate of natural increase is a
proxy (possibly a crude one) for generalized
dualism because it measures the gap between
the early adoption of mortality-reducing
modern technologies and the later adoption
of modern attitudes toward reproduction and
modern birth control methods. The effect of
population growth on income inequality is
expected to be smaller for U.S. counties,
which are well past their demographic transi-
tions, than it would be in a cross-section of
contemporary nations. To the extent that this
demographic mechanism is at work in the
period under study, and assuming that the
demographic transition's effects decay over
time, we predict that: (1) the rate of natural
increase (birth rate minus death rate) has a
positive effect on income inequality, and (2)
this effect is stronger in earlier than in later
periods.
Another major aspect of development is
the diffusion of education. Beginning with
Mill (1848) over a century ago, social scien-
tists have believed that the spread of educa-
tion, sometimes called "skills deepening"
(Williamson 1991), is associated with re-
duced inequality.4 This is consistent with the
standard economic argument that an increase
in the supply of people with advanced edu-
cational credentials should increase compe-
tition for positions requiring these creden-
tials and thereby reduce the wage differen-
tial between the educated and uneducated
(Tinbergen 1975; Lecaillon et al. 1984:88).
The spread of education, as measured by en-
rollments in secondary schools, has a strong
negative effect on income inequality in cross-
national data (Simpson 1990; Nielsen 1994).
This finding would be expected in a cross-
national data set in which units of analysis
4Lecaillon et al. (1984:86-90), however, dis-
cuss plausible scenarios associating the spread of
education with increased income inequality.
 18 AMERICAN SOCIOLOGICAL
span the entire range of development levels.
In such a context, educational expansion
ovaries so strongly with development that
its relationship with inequality should be
negative.
A few researchers have pointed out that the
relationship between income inequality and
educational expansion may differ among ad-
vanced industrialized societies. Crenshaw
and Ameen (1994) claimed that, even in a
cross-national context, the relationship is re-
versed and becomes positive at high levels of
educational expansion, reflecting "a post-
industrial regime with a new set of social in-
equalities" (p. 11). Jacobs (1985) argued that
the distribution of educational attainment af-
fects the distribution of income through the
dispersion of education rather than through
the average level of education. To the extent
that, for individuals, more education is asso-
ciated with higher income, the distribution of
educational attainment in a population is
bound to have a compositional effect on in-
come inequality, as the greater dispersion of
educational attainment is translated, however
noisily, into greater dispersion of income
(i.e., inequality). At an aggregate level, in-
come inequality should be positively associ-
ated with a measure of the dispersion of edu-
cational attainment in the population.
Chiswick and Mincer (1972), Chiswick
(1974), Hirsch (1978), and Jacobs (1985) all
reported positive associations between in-
come inequality and inequality of educa-
tional attainment. We investigate this hypo-
thetical association using an indicator for
educational heterogeneity that measures the
diversity (dispersion) of educational attain-
ment in the adult population of a county. We
predict that, controlling for development,
educational heterogeneity has a positive ef-
fect on income inequality.
The compositional hypothesis concerning
the effect of the distribution of education on
inequality has implications for comparisons
of our model across periods. To anticipate
some of the empirical results, we find a posi-
tive association between educational hetero-
geneity and the average educational attain-
ment in a county, so that counties with high
educational heterogeneity scores also have
high proportions of high school and college
educated adults (see also Nielsen and War-
ren 1995). There is also a positive associa-
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REVIEW
tion between average educational attainment
and economic development as measured by
median family income. We speculate that in
earlier periods, the spread of education at the
county level was strongly associated with
economic development and that its overall
effect on inequality was negative the same
effect as that found in cross-national data. By
1990, the compositional effect of the educa-
tional distribution grew stronger, and thus the
effect of educational heterogeneity on in-
come inequality should be increasingly posi-
tive. Therefore, we predict that the positive
effect of educational heterogeneity on income
inequality is stronger in later than in earlier
periods.
Income inequality in the United States has
historically been higher than in other ad-
vanced industrial countries (Nielsen and
Alderson 1995). One cause of the higher in-
equality in the United States may be the na-
ture of race relations. Systematic differences
in income between the two major racial
groups, Blacks and Whites, represent an ad-
ditional source of inequality that could
elevate overall income inequality in this
country above that of other societies at simi-
lar levels of industrial development. To cap-
ture this, we use an indicator of racial dual-
ism that measures income inequality in a
county resulting from the difference in aver-
age incomes between Black families and
White families. The indicator of racial dual-
ism is based on the same formula as sector
dualism and is sensitive to the relative size
of the racial groups and the difference be-
tween them in average income. The racial
composition of counties and the amount of
racial dualism vary considerably by region.5
5In a study using 1980 data for North Carolina
counties, Nielsen and Warren (1995) found a U-
shaped relationship between overall income in-
equality and racial dualism. The curvilinearity is
related to regional differences within the state:
Counties with low racial dualism tend to be lo-
cated in the Mountain region and are character-
ized by relatively small Black populations and
high inequality, while counties with high racial
dualism are mainly Coastal Plain counties with
relatively large poor Black populations and high
income inequality. Counties with intermediate
levels of racial dualism in the more developed
Piedmont region have the lowest levels of income
inequality.
THE KUZNETS CURVE AND THE GREAT U-TURN 19
Therefore we can test the prediction that,
controlling for other factors, racial dualism
has a positive effect on income inequality.
According to an influential study by Wil-
son (1980), the significance of race as a de-
terminant of economic achievement declined
in the postwar period. Others have argued
that the decline in the significance of race
was reversed during the 1980s as a result of
the government's retreat from antidiscrimi-
nation initiatives (Cancio, Evans, and
Maume 1996). Insofar as systematic dis-
crimination based on race has lessened over
time, the importance of racial dualism as a
component of overall income inequality
should also decline. Therefore, we can test
Wilson's general prediction that the effect of
racial dualism on income inequality is stron-
ger in earlier than in later periods against
the alternative prediction-that its effect has
not decreased or has become stronger.
The Great U-Turn
The upswing in inequality that began in 1969
for family income and in 1976 for earnings
has generated a range of attempts to explain
this reversal in the long trend toward declin-
ing inequality (Thurow 1987; Bluestone
1990; Levy and Michel 1991; Levy and
Murnane 1992; Ryscavage, Green, and
Welniak 1992). The explanations have fo-
cused on a few potential causes: the chang-
ing role of women, the changing socioeco-
nomic situation of the elderly, declining in-
dustrial employment, and the international
position of the United States.
Commenting on the upswing in inequality
in the distribution of earnings, Thurow (1987)
was blunt in implicating the role of increased
labor-force participation by women:
What, then, is the cause of the rising inequality
in the distribution of earnings? There are two
major forces: (1 ) intense international competi-
tive pressures, coupled with high unemploy-
ment, and (2) a rising proportion of female
workers. (P. 33)
Thurow (1987:34-35) argued that increased
female-labor force participation contributed
to the upswing in earnings inequality in two
ways: (1) Because women are paid less and
more often work part-time, greater participa-
tion in the labor force by women inflates the
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bottom of the earnings distribution.6 This
trend, together with the increasing proportion
of households headed by women, thus con-
tributes to greater inequality in the distribu-
tion of family income. (2) Assortative mat-
ing causes high-income wives to be married
to high-income husbands, amplifying the ad-
vantage of high-earning families when both
spouses are in the labor force. Bluestone
(1990:28-32), while viewing other factors as
more important causes of the rise in inequal-
ity in the 1970s, concurs that there is at least
weak evidence for an influence of female la-
bor-force participation. Thurow's and Blue-
stone's arguments lead to the prediction that,
controlling for other factors, greater labor-
force participation by women is positively
associated with income inequality.
Another trend related to the changing role
of women has been the increasing proportion
of female-headed households. Levy and
Michel (1991:38-39) found that from 1973
to 1986, a period during which inequality in
the distribution of family income was rising,
the proportion of families headed by a single
woman (among families with a head under
age 65) increased from 1 in 8 to 1 in 5. Inso-
far as female-headed families have lower-
than-average incomes, this trend inflated the
proportion of poor families (see McLanahan,
S0rensen, and Watson 1989 concerning the
implications of these trends for the "femini-
zation of poverty"). The discussion by Levy
and Michel (1991) leads us to expect that,
controlling for other factors, the percent of
families headed by a single female is posi-
tively associated with inequality.
Levy and Michel (1991:38) described the
upward movement of elderly families in the
distribution of income between 1973 and
1986 as a result of the fact that this genera-
tion of elderly was the first to enjoy full ben-
efits under the Social Security program. This,
combined with the indexing of Social Secu-
rity benefits, meant that the incomes of eld-
erly families were increasing. During the pe-
riod under consideration, most elderly fami-
lies joined the lower middle of the income
distribution, while prior to that time they
6 Trends in the distribution of earnings of men
and women are discussed in Levy and Michel
(1991:6) and Bernhardt, Morris, and Handcock
(1995).
 20 AMERICAN SOCIOLOGICAL
were concentrated in the poorest segment of
the distribution. The historical ascent of the
elderly in the income distribution during the
two decades under investigation implies a
systematic pattern of change in the relation-
ship at the county level between income in-
equality and the proportion elderly (mea-
sured as the percentage of the population
over age 65). We predict, therefore, that (1)
in the earlier period (1970), the relative size
of the elderly population is positively associ-
ated with income inequality; and (2) in the
later period (1990), the relative size of the
elderly population is negatively associated
with inequality.
Bluestone and Harrison (1982) and Harri-
son and Bluestone (1988) popularized the
term "deindustrialization" by tracing the far-
reaching consequences of the erosion of the
industrial base of the United States in recent
decades. Bluestone (1990:28-32) saw the de-
cline in manufacturing employment as one of
the main causes of two major trends since the
early 1970s: the increase in the low-wage
share of year-round full-time employment,
and the increase in wage inequality. The de-
cline in manufacturing employment contrib-
utes to increased income inequality because
the manufacturing sector is typically charac-
terized by higher wages and a more equal
wage distribution than is the service sector,
so transfers of jobs from the manufacturing
sector to the service sector produce more in-
equality as well as a larger proportion of low-
wage jobs. Ryscavage et al. (1992) identified
the shift from goods-producing to service oc-
cupations as one of the main factors behind
the upswing in inequality. Although some re-
cent empirical studies (e.g., Raffalovich
1993) cast doubt on the importance of de-
industrialization in explaining the Great U-
Turn, others (Lorence and Nelson 1993) cor-
roborate it. We measure manufacturing em-
ployment and investigate the Bluestone-
Harrison conjecture that manufacturing em-
ployment has a negative effect on inequality.
Thurow (1987:33) also implicated rising
unemployment (which he viewed as a result,
in part, of the weakening competitive posi-
tion of the United States) in the upswing in
inequality. More recently, Wood (1994) ar-
gued that competition from low-skill nations
has resulted in declining demand for un-
skilled labor in advanced industrialized soci-
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REVIEW
eties. The reduced demand for unskilled la-
bor has tended to widen wage differentials
between the skilled and unskilled. Where in-
stitutional resistance to wider wage differen-
tials has been great (as in continental Eu-
rope) increased competition from low-skill
nations has tended to express itself in rising
unemployment. Where institutional resis-
tance has been weak, as in the United States,
the result has been widening wage differen-
tials and greater income inequality. Wood's
(1994) argument suggests that, in different
institutional environments, high unemploy-
ment and high income inequality are alterna-
tive responses to the reduced demand for un-
skilled labor, not phenomena connected by a
direct causal link. As we cannot do justice
here to the issues raised by Wood (1994), we
test Thurow's simpler prediction that, at the
county level, the unemployment rate has a
positive effect on inequality.7
DATA AND MEASUREMENT
We collected data from various sources for
the approximately 3,100 counties and county
equivalents of the United States in 1970,
1980, and 1990. The actual number of coun-
ties varies from 3,103 to 3,141 depending on
the year. Sources for all variables are listed in
Table 1. Several variables, such as the mea-
sure of income inequality, are based on math-
ematical transformations of the raw data.
Income Inequality
Our measure of inequality is the Gini coeffi-
cient. This is calculated from the distribution
of family income at the county level from the
U.S. censuses of 1970, 1980, and 1990. The
Gini coefficient, which varies between 0 per-
cent (perfect equality) and 100 percent (max-
imum inequality), has the advantage that it is
comparable with inequality measures avail-
able cross-nationally (World Bank 1990) and
for the entire United States since 1947 (see
Figure 1). Gini coefficients were calculated
from the raw distributions, which are given
as the number of families in various income
7 Thanks to an anonymous reviewer for bring-
ing Wood's work to our attention. Alderson is
currently pursuing these issues in the context of
work on globalization.
THE KUZNETS CURVE AND THE GREAT U-TURN 21

Table 1. Variables and Sources of Data Used in the Analysis

Source a/Year

Variable 1970 1980 1990

Income inequality (Gini x100) Adams 1992a Adams 1992b USBC 1991

Median family income USBC 1978 USBC 1992 USBC 1991

Population density USBC 1978 USBC 1992 USBC 1992

Sector dualism USBC 1992, USBC 1992, USBC 1992,

USBC 1978 USBC 1984 USBC 1991

Percent farm population USBC 1978 USBC 1984 USBC 1991

Rate of natural increase

(per 1,000 population) USBC 1978 USBC 1992 USBC 1992

Educational heterogeneity USBC 1978 USBC 1992 USBC 1991

Racial dualism Adams 1992a, USBC 1982 USBC 1991

USBC 1978

Percent of females in the labor force Adams 1992a Adams 1992b USBC 1991

Percent female-headed households USBC 1978 Adams 1992b USBC 1991

Percent over age 65 USBC 1978 Adams 1992b USBC 1991

Percent of labor force in manufacturing USBC 1978 Adams 1992b USBC 1991

Percent unemployed USBC 1978 USBC 1984 USBC 1991

a USBC is U.S. Bureau of the Census.

categories (15, 17, and 25 income categories
in 1970, 1980, and 1990, respectively). The
procedure requires estimating the Lorenz
curve, which plots the cumulative income
shares on the vertical axis against the cumu-
lative population shares on the horizontal
axis. To estimate the income share of an in-
come category, the average income of the in-
come category must be evaluated. Simple-
minded procedures, like taking the category
midpoint as the average income and dealing
with the open-ended top category by discard-
ing it or taking its lower bound as the aver-
age, yield misleading Gini estimates. Instead,
we adapt a procedure used by the U.S. Cen-
sus Bureau, the Pareto-linear procedure. This
is based on Pareto's (1897) observation that
for upper income levels a plot of the loga-
rithm of the number of recipients with in-
come greater than a given level of income
against the logarithm of income tends to
yield a straight line (Miller 1966:213-21;
Spiers 1977; U.S. Bureau of the Census
1980; Welniak 1988; also see Parker and
Fenwick 1983). The Pareto-linear procedure
estimates the average income in the income
category containing the median, and catego-
ries below, as the category midpoint. The av-
erage income of income categories above the
median is estimated by fitting a Pareto dis-
tribution to each interval, using formulas
given by Allen (1938:407-408) or Klein
(1962:150-54). Finally, the open-ended up-
per category is treated in a special way, also
based on fitting a Pareto distribution.8
Given estimated points on the Lorenz
curve (pi,Lj), where pi and Li represent th
cumulative population and income shares for
each income category i = 1, . . . k (where k
is the number of income categories), the
value RL of the Gini coefficient is calculated
using the formula given by Nyga'rd and
Sandstr6m (198 1:292, eq. 8.10):
RL = Pk-1_ XlL= ( I -p) ( 1 )
Measures of Dualism
Measures of dualism are special cases of in-
equality measures. We use an approach based
on the Gini coefficient (Nielsen 1994). For
farm/nonfarm sector dualism, the Gini coef-
8 The details of the algorithm, which also
handles special cases like empty categories and
improbable Pareto slope estimates, are embodied
in a computer program PRLN.PAS in the Pascal
language developed by Nielsen.

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 22 AMERICAN SOCIOLOGICAL
ficient is calculated from figures for the farm
population as a percent of the total popula-
tion (p) and farm earnings as a percent of to-
tal earnings (L), and derived from the gen-
eral equation 1 for computing the Gini coef-
ficient from points on the Lorenz curve. With
only two sectors, farm and nonfarm, equation
1 with k = 2 reduces to
DG = RL =IP-LL, (2)
where p -p1 and L -- L1. The absolute value
operator guarantees a positive value for sec-
tor dualism when average farm earnings are
greater than nonfarm earnings.
Racial dualism is estimated in the same
way as sector dualism using equation 2,
where p is the percent Black of all families
and L is the aggregate income of Black fami-
lies as a percent of the aggregate income of
all families. Estimation of racial dualism in-
volved several complications. First, we were
unable to find county-level data on the aver-
age income of families by race for 1970. We
therefore calculated for 1970 a "pseudo-
Gini" that uses the median instead of the av-
erage as the measure of the central tendency
of family incomes for Blacks and Whites.
Second, we were also unable to find data on
averagefamily income by race for 1990, and
therefore we calculated racial dualism on the
basis of average household income for
Blacks and Whites in that year. Finally, for
reasons of confidentiality, the U.S. Census
Bureau suppresses income data for Blacks in
counties with few Black families or house-
holds. This initially produced many missing
values for this variable. For counties where
Blacks made up 0 to 5 percent of the popula-
tion and data were suppressed, we assigned
the value 0 to the racial dualism measure.
The assumed value of 0 is a reasonable ap-
proximation in such cases because in coun-
ties with small Black populations, p and L
are expected to be small in equation 2 and
would yield small values for racial dualism.
We coded racial dualism as missing for coun-
ties where Blacks made up more than 5 per-
cent of the population and income data by
race were suppressed.
Educational Heterogeneity
Educational heterogeneity is calculated using
Theil's (1972:6, eq. 1.6) formula for entropy:
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REVIEW
= Pi)
where in is the natural logarithm, n = 3, and
PI, P2, and p3 are the proportions of the adult
population (ages 25 years old and older)
without a high school degree, with a high
school degree only, and with a four-year col-
lege degree, respectively. Thus, the educa-
tional categories are mutually exclusive. The
entropy formula, originally derived by Shan-
non (1948) in the context of information
theory, has been interpreted more broadly by
Theil (1972:13-15) as a general measure of
dividedness, that is, the extent to which a
given total (in this case the adult population)
is evenly divided into parts (here, different
levels of educational attainment). (For its ap-
plication as a measure of political competi-
tion, see Nielsen 1986.) Educational hetero-
geneity assumes its maximum value when
the adult population of the county is evenly
distributed among the three categories of
educational attainment, and its minimum
value when the entire population is concen-
trated in a single category.
MODEL ESTIMATION:
RANDOM EFFECTS MODEL
We estimate linear regression models with
income inequality as the dependent variable
for the years 1970, 1980, and 1990. In any
given year, our data set has a nested struc-
ture, with counties nested within states. The
data set is unbalanced because the number of
counties differs by state. Data of this type are
amenable to estimation methods that deal
with potential heterogeneity bias, or the con-
founding effects of unmeasured variables
that are county-invariant within a state and
that are omitted from the regression model
(Hsiao 1986:5-6). All counties in a given
state may be similarly affected by state-level
processes, such as events originating in the
state polity, that are not measured by the
county-level variables in the model. Such
characteristics of the state polity and other
state-level processes that affect within-
county income inequality uniformly would
appear as an unmeasured state-specific,
county-invariant error component, producing
heterogeneity bias. Heterogeneity bias can
seriously affect ordinary least squares coef-
 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
between-state variation present in the data.
The FEM procedure therefore consumes
much information. Second, the REM has
been shown to be asymptotically efficient
relative to the FEM (Tuma and Hannan
1984).9
9 The REM, FEM, and OLS estimation proce-
dures yielded similar substantive patterns. Fur-
thermore, results indicate that state-specific fac-
tors represent only a small proportion of the error
variance in the fully specified models, suggesting
that the FEM is not needed with these data (see
below and footnote 16). Further discussion of
fixed-effects and random-effects models can be
gram (Greene 1992, chap. 29). The OLS regres-
sions and diagnostics for influential cases were
carried out with SYSTAT (Wilkinson 1990a).
The figures were produced with SYGRAPH
(Wilkinson 1990b).
10 The OLS results, correlations and basic sta-
tistics, and significance tests for comparisons of
coefficients between time points are not pre-
sented. These tables are available from the au-
thors on request.
l The minimum tolerance value found for all
(OLS) estimated coefficients was .195 (for fe-
male-headed households in 1990), corresponding
to a variance inflation factor of 5.13, well below
the cutoff of 10 often taken as indicative of ex-
cessive collinearity (Neter, Wasserman, and
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

Model Model Model Model

Independent Variable 1 2 3 4

Constant 151.59*** 159.50*** 130.18*** 134.45***

(80.456) (72.167) (53.697) (45.732)

Median family income (log) -29.616*** -34.367*** -24.630*** -27.383***

(-61.562) (-53.877) (-39.266) (-34.423)
Population density (log) 1.060** .786***
(11.200) (8.284)

Sector dualism .030*** .0248**

(4.958) (4.133)
Percent farm population .039*** .043***
(8.485) (9.348)

Rate of natural increase .007 .043***

(.913) (3.922)

Educational heterogeneity 8.680*** 4.211

(14.048) (6.595)

Racial dualism .183*** .132***

(18.872) (12.338)

Percent females in the labor force -.001 .012

(-.106) (1.385)

Percent female-headed households .327*** .176***

(19.567) (8.042)
Percent over 65 .079*** .110***
(6.033) (6.232)

Percent of labor force in manufacturing -.076*** -.063***

(-19.529) (-16.038)

Percent unemployed -- -.038 .033

(-1.833) (1.655)

R 2 .670 .762 .754 .807

Rho .301 .200 .092 .069
Number of counties 2,989 2,926 2,989 2,926

Note: Numbers in parentheses are t-statistics.

*p < .05 **p < .01 ***p < .001 (two-tailed tests)

RESULTS factor that is particularly relevant to the U.S.

Regression results are shown in Table 2
(1970), Table 3 (1980), and Table 4 (1990).
The independent variables are roughly di-
vided into two sets. The first set comprises
variables that originate in general theories of
income inequality and development, often in
the context of the Kuznets curve. These in-
clude economic development (logged median
income), urbanization, the effect of labor-
force shifts out of agriculture (sector dual-
ism and percent farm population), the rate of
natural increase, and the spread of education,
measured here as educational heterogeneity.
We have added to this set racial dualism, a
context. The second set includes variables
evoked in discussions of the Great U-Turn in
the past two decades: female labor-force par-
ticipation, female-headed households, per-
cent population over age 65, manufacturing
labor force, and the unemployment rate.
Income Inequality and Industrial
Development
Referring to the 1970 results in Table 2,
Model 1 includes only the general measure
of development, logged median income, to
evaluate the predicted negative association of
income inequality with development. The

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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

Model Model Model Model

Independent Variable 1 2 3 4

Constant 144.88*** 142.04*** 136.18*** 129.57***

(70.693) (67.796) (55.502) (45.741)
Median family income (log) -25.662*** -27.982*** -23.154*** -23.297***
(-53.530) (-51.920) (-39.832) (-35.244)

Population density (log) .560*** 356***

(7.151) (4.422)

Sector dualism -.002 -.004

(-.503) (-.946)

Percent farm population .071 *** .070***

(13.110) (12.545)

Rate of natural increase .027*** .003

(3.442) (.289)
Educational heterogeneity 11.022*** 6.504***
(14.978) (8.479)
Racial dualism ,299*** - .161 ***
(24.676) (10.905)

Percent females in the labor force -.054*** -,056***

(-7.438) (-7.751)

Percent female-headed households .293*** .201 ***

(29.625) (13.320)

Percent over 65 .008 -.018

(.768) (-1.192)

Percent of labor force in manufacturing -.072*** -.054***

(-19.395) (-14.183)

Percent unemployed -. l 9 l *** -.096***

(-13.623) (-6.758)

R2 .537 .675 .716 .750

Rho .492 .276 .302 .169
Number of counties 3,023 2,876 3,023 2,876

Note: Numbers in parentheses are t-statistics.

*p < .05 **p < .01 ***p < .001 (two-tailed tests)

negative effect is strongly significant: In Figure 2 provides a more detailed view of

1970, median family income alone explains
67 percent of the variance in income inequal-
ity. Comparing this figure with the results for
later years in Tables 3 and 4, the explanatory
power of median family income declines
regularly over time-R 2 = .537 in 1980 and
R2 = .401 in 1990-suggesting that variables
other than a county's level of development
became increasingly important.'2
12 The zero-order (OLS) correlations between
income inequality and logged median income are
-.837, -.739, and -.649 in 1970, 1980, and 1990,
respectively. Even in 1990, median income is the
independent variable most strongly associated
with income inequality.
the evolution of the relationship between in-
come inequality and economic development.
The scatterplots of income inequality by
logged median income show increasing scat-
ter around a strong negative relationship.
Nonparametric regression curves fitted by
Distance-Weighted Least Squares (McLain
1974; Wilkinson 1990b:236) suggest that
part of the increasing scatter around the lin-
ear trend is a result of increasing nonlinearity
of the regression line, as the relationship
tends to become increasingly convex to the
origin in later years. Although the most pros-
perous counties (in terms of median income)
in 1970 had the lowest income inequality, by

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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

Model Model Model Model

Independent Variable 1 2 3 4

Constant 132.17 139.42*** 95.459*** 104.32***

(55.762) (66.182) (33.449) (32.966)
Median family income (log) -21.2*** -27.889*** -1 1.935*** -18.059***
(-40.343) (-58.406) (-18.035) (-25.177)

Population density (log) 1.040*** .622***

(12.335) (7.777)

Sector dualism .006 .002

(1.224) (.502)

Percent farm population -.014* .025***

(-1.988) (3.447)

Rate of natural increase .058*** .029*

(6.827) (2.381)

Educational heterogeneity 21.719*** 18.997***

(26.909) (24.016)

Racial dualism .257*** .1 15***

(23.279) (8.178)

Percent females in the labor force 1.134*** -.115 ***

(-13.127) (-12.619)

Percent female-headed households .362*** .182***

(39.056) (13.676)

Percent over 65 -.059*** -.066***

(-4.791) (-4.424)

Percent of labor force in manufacturing -.065*** -.046***

(-15.117) (-11.631)

Percent unemployed -.048* .020

(-2.327) (1.083)

R 2 .401 .713 .700 .789

Rho .459 .280 .082 .087
Number of counties 3,003 2,965 3,003 2,965

Note: Numbers in parentheses are t-statistics.

*p < .05 ** < .01 ***p < .001 (two-tailed tests)

1990 this pattern is reversed so that among
the most prosperous counties greater median
income is associated with increased income
inequality.
Model 2 includes the entire set of variables
relating to economic development. Model 3
introduces, in addition to logged median
family income, the variables involved in the
debate surrounding the upswing in inequal-
ity and the "disappearing middle-class"
(Levy and Michel 1991). Model 4 is the full
model that includes all the independent vari-
ables. We focus on Model 4.
In Table 2, Model 4, the coefficient for
population density-our measure of urban-
ization-is significant and positive, as ex-
pected from Kuznets's ([1955] 1965) conjec-
ture concerning the greater range of status in
urban settings compared to rural settings.
The effect is positive in Model 4 even though
the zero-order correlation is negative (-.296).
The effect of population density on inequal-
ity remains positive in later years (Tables 3
and 4). The impact of the shift of the labor
force away from agriculture is captured by
sector dualism and percent farm population.
The classical expectation is that sector dual-
ism has a positive effect on income inequal-
ity because it represents inequality resulting
from the difference in average income be-
tween agriculture and the rest of the econ-
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

Median Income (log 10), 1970 Medianl Income (log 10),18

cc ~ ~ ~ C C -

Median Income (log 10), 1970 Median Income (log 10), 1980

1980, and 1990

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
of low income inequality in the agricultural
sector (Nielsen 1994). The regression results
fall short of this expectation, as both vari-
ables have a significant positive effect on in-
come inequality in 1970. In 1980 and 1990,
the effect of sector dualism vanishes (the
1970-1980 decline is significant), while the
coefficient for percent farm population re-
mains significant and positive. This ambigu-
ous pattern is consistent with the view that
labor-force shifts between the agricultural
and nonagricultural sectors have become a
minor determinant of within-county income
inequality in recent decades.
The coefficient for the rate of natural in-
crease in population is significantly positive
in 1970, nonsignificant in 1980, and signifi-
cantly positive again in 1990. The positive
effect is in the predicted direction, as the rate
of natural increase is assumed to affect in-
come inequality directly by affecting the sup-

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 28 AMERICAN SOCIOLOGICAL
ply of labor and indirectly as a proxy for gen-
eralized dualism. The irregular pattern over
time, however, was not predicted, as a more
monotonic decline in the coefficient over
time would be expected as counties move
further away from their demographic transi-
tions.
Educational heterogeneity has a strong
positive effect on income inequality in 1970:
The greater the heterogeneity of educational
attainment in a county, the greater the in-
equality of the distribution of income. The
positive effect of educational heterogeneity
emerges in the multiple regression equation
where other variables are controlled, even
though in 1970 the zero-order association of
this variable with income inequality is
strongly negative (-.455). This contrast is
consistent with the pattern of a positive asso-
ciation between educational heterogeneity
and mean educational attainment (and there-
fore with economic development), which
confounds the positive effect of educational
heterogeneity on inequality with the negative
effect of economic development in the zero-
order relationship. The positive effect of edu-
cational heterogeneity on income inequality
increases significantly after 1970 (the in-
crease between 1980 and 1990 is particularly
pronounced), while the zero-order correlation
changes from negative to positive
(-.455, -.168, and .343 in 1970, 1980, and
1990, respectively). The correlation between
educational heterogeneity and median family
income decreases over the period (.676, .474,
and .181). This pattern is consistent with an
increasing impact of educational heterogene-
ity on income inequality combined with the
spread of educational heterogeneity from
centers of development to outlying areas.
Wilson's (1980) argument regarding the
declining significance of race implies that
the effect of racial dualism on income in-
equality should wane in more recent periods
as U.S. society moves further away from ra-
cial discrimination. In fact, racial dualism
has a strong significant and positive effect on
income inequality in 1970, and the effect
shows no sign of disappearing in 1980 and
1990, although there is a statistically signifi-
cant decline in the coefficient between 1980
and 1990 (from .161 to .115). This consis-
tency is even more remarkable given that ra-
cial dualism is measured in somewhat differ-
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REVIEW
ent ways for the three periods. We conclude
that racial dualism remains a strong compo-
nent of overall income inequality in contem-
porary U.S. society, despite a small decline
in its impact.
The Great U-Turn
Thurow (1987) confidently implicated in-
creased female labor-force participation as a
major culprit in the recent upswing in in-
equality. Thurow predicted a positive effect
of female labor-force participation on income
inequality. The coefficient for female labor-
force participation in Model 4 for 1970 is not
significant (Table 2). For both 1980 and 1990,
however, the effect of female labor-force par-
ticipation is strongly significant and nega-
tive-the opposite of Thurow's expectation.
It seems that the net impact of the increase in
labor-force participation by women, which
has been considerable,'3 has been to create
more families with total incomes closer to the
center of the income distribution, lessening
the trend toward greater inequality caused by
other aspects of social change during the pe-
riod (Ryscavage et al. 1992).
Another aspect of the changing role of
women, the percent of households headed by
females, has more disturbing consequences.
This variable has a strongly significant posi-
tive effect on income inequality in 1970, and
its effect increases in both magnitude and
significance in 1980 and 1990. This suggests
a substantial role for this variable in the up-
swing in income inequality since 1970. The
effect of the size of the elderly population
(percent over age 65) exhibits a more com-
plex pattern over time. In 1970 (Table 2), the
percent over age 65 has a strongly significant
positive effect on income inequality, reflect-
ing the fact that elderly families were a rela-
tively disadvantaged segment of the income
distribution. The effect in 1980 (Table 3) is
nonsignificant, and in 1990 (Table 4) the ef-
fect is strongly significant and negative. (The
decline in the value of the coefficient be-
tween 1970 and 1990 is strongly significant.)
This reversal in the direction of this effect is
consistent with the scenario proposed by
13 Average female labor-force participation is
36.7, 44.8, and 52.0 percent in 1970, 1980, and
1990, respectively.
THE KUZNETS CURVE AND THE GREAT U-TURN 29
Levy and Michel (1991), who described the
average elderly family as moving up in the
income distribution in the 1970s and 1980s
because of the increasing impact of the So-
cial Security program on cohorts reaching re-
tirement age during that period and the in-
dexing of Social Security benefits.
Inclusion of the percentage of the labor
force employed in manufacturing in Model 4
permits an evaluation of the deindustrial-
ization argument of Bluestone and Harrison
(1982) and Harrison and Bluestone (1988).
The relative size of the manufacturing labor
force has a strongly significant negative ef-
fect on income inequality in 1970 (Table 2).
This negative effect remains stable in 1980
and 1990, providing strong support for the
deindustrialization thesis.
Unemployment is another aspect of the
deindustrialization argument. In the simple
version of this argument, international com-
petition is viewed as generating unemploy-
ment, which produces greater inequality in
the income distribution (Thurow 1987; but
see Wood 1994). The percent unemployed in
Model 4 yields ambiguous results. The effect
of the unemployment rate is nonsignificant in
1970, but in 1980 it is negative and strongly
significant, suggesting that unemployment
reduces income inequality, contrary to the
prediction. In 1990, however, the effect of un-
employment is again nonsignificant.'4
For the full regression model (Model 4) R2
ranges from .750 in 1980 to .807 in 1970,
suggesting that these independent variables
taken together are powerful determinants of
variation in income inequality across U.S.
counties.
Unmeasured State Effects
The use of the REM procedure was moti-
vated by a desire to take into account the
possible presence of unmeasured state-spe-
cific factors affecting county-level income
inequality uniformly within a state. Unmea-
sured outcomes of autonomous state-level
political activity, for example, would be ex-
pected to behave in this county-invariant,
14 This ambiguous pattern of effects is consis- is unlikely to be a productive strategy. There is
tent with Wood's (1994) view of income inequal-
ity and unemployment as alternative responses to
the reduced demand for low-skill labor.
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state-specific manner (Jacobs 1985). The
relative impact of the state-specific compo-
nent of the error term can be estimated by
the rho coefficient shown for each regression
model in Tables 2, 3, and 4. Rho is a mea-
sure of the correlation among the error terms
of counties due to the presence of the state-
specific component. Thus a high value of rho
indicates that unmeasured state-specific fac-
tors have a strong impact on the variation in
income inequality among counties.15 The
pattern is similar for each census year: The
estimated value of rho is highest in Model 1,
which includes only logged median income
and is therefore most likely to be under-
specified, with values for Model 1 of .301,
.492, and .459 in 1970, 1980, and 1990, re-
spectively. As explanatory variables are add-
ed in Models 2, 3, and 4, the estimated value
of rho decreases, indicating that the unmea-
sured state-specific component is progres-
sively accounted for by variables included in
the models. In Model 4, values of rho are
.069, .169, and .087 for the three census
years. These small estimated values of rho
suggest that variables in the full regression
model (Model 4) capture most of the state-
specific factors (including those related to
state-level policy outcomes) that affect in-
come inequality within counties.16
CONCLUSION AND DISCUSSION
We have examined the processes affecting
inequality in the distribution of income in
U.S. counties in 1970, 1980, and 1990 in the
hope of gaining insights into two major his-
torical trends that characterize industrialized
societies in the twentieth century: the declin-
15 Rho is estimated as
Var(u)
Var(u) + Var(e)
where u denotes the state-specific county-invari-
ant error and e denotes the ordinary regression
error that varies over both states and counties
(Greene 1992:303).
16 The small estimated values of rho also sug-
gest that attempting to unravel state effects on in-
come inequality by explicitly measuring state-
level variables (such as average AFDC payments)
little evidence in our results for state-specific ef-
fects of any kind after controlling for the county-
level variables.
 30 AMERICAN SOCIOLOGICAL
ing level of income inequality that has mark-
ed industrial development during the later
part of the Kuznets curve, and the upswing
in inequality since the early 1970s. We have
examined the impact on income inequality of
two sets of factors: variables related to the
impact of industrial development on income
inequality in the context of the Kuznets
curve, and variables invoked in the more re-
cent debate surrounding the upswing in in-
equality.
Our regression models of income inequal-
ity, which control for unmeasured state-spe-
cific effects with REM estimation, reveal
several distinct patterns. Results suggest the
continued importance of the Kuznetsian pat-
tern of declining income inequality with eco-
nomic development, even though in recent
years the association has become increas-
ingly convex to the origin, indicating increas-
ing income inequality in the most prosperous
counties. Controlling for economic develop-
ment, urbanization has a positive effect on
inequality, supporting an early suggestion by
Kuznets. Sector dualism effects associated
with labor-force shifts from agriculture to
other sectors of production have a minor im-
pact on variation in county-level income in-
equality during the period investigated. The
rate of natural increase in population, which
is strongly associated with inequality in
cross-national data, is also a weak predictor
of income inequality in counties of an indus-
trial society during the later part of the twen-
tieth century. However, heterogeneity of edu-
cational attainment has an increasingly
strong positive impact on income inequality
from 1970 to 1990, suggesting a new role for
the education distribution in determining in-
come inequality in advanced industrial soci-
eties. Racial dualism, which measures the
amount of inequality resulting from the dif-
ference in average income between Blacks
and Whites, has a surprisingly strong and
persistent effect on income inequality during
the period studied.
With respect to variables that have been
invoked in the Great U-Turn debate, our re-
sults exonerate at least one variable sus-
pected of contributing to the upswing in in-
equality since 1970: Instead of the predicted
positive effect of female labor-force partici-
pation on income inequality, this variable has
an increasingly strong negative effect. In
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REVIEW
agreement with the expectation of most ob-
servers, however, the percentage of female-
headed households is a strong contributor to
income inequality. The effect on inequality
of the percent of the population over age 65
tracks historical changes in the position of
this group in the income distribution that
took place over the two decades under
study-from a positive effect in 1970, when
the elderly were a much more disadvantaged
group than today, to a negative effect in
1990, when the elderly assumed a more cen-
tral position in the income distribution. The
percent of the labor force in manufacturing
has a strong negative effect on income in-
equality at all time points, consistent with the
deindustrialization argument, while the ef-
fect of the unemployment rate on inequality
shows no clear pattern.
The declining importance of some of the
factors traditionally associated with the im-
pact of industrial development on income in-
equality (such as sector dualism and popula-
tion growth associated with the demographic
transition) and the increasing importance of
new factors (particularly educational hetero-
geneity and variables representing new liv-
ing arrangements, such as female-headed
households and female labor-force participa-
tion) suggest that the determination of in-
come inequality in advanced industrial soci-
eties is the outcome of a new set of processes.
Our analyses provide a glimpse of some of
the features of this new causal regime.
Clearly, further research is needed to fully
elucidate the nature of distributional pro-
cesses in advanced industrial society.
Franfois Nielsen is Associate Professor of Soci-
ology at the University of North Carolina at
Chapel Hill. He is continuing research with
Arthur Alderson on the relationship between in-
come inequality and development, using both
cross-national data and data on United States
counties. He is also doing research on simulation
models of income distribution, the emergence of
regions in the European Union, sociobiology, and
the influence of Protestantism on the early devel-
opment of industrial capitalism in Europe.
Arthur S. Alderson is a Ph.D. student in sociol-
ogy at the University of North Carolina at Chapel
Hill. In the fall of 1997, he will join the faculty at
Indiana University in Bloomington. In addition to
his continuing work with Franmois Nielsen on in-
come inequality, his research interests include
THE KUZNETS CURVE AND THE GREAT U-TURN 31
comparative and historical sociology, political
and economic sociology, and international devel-
opment. His dissertation research is devoted to
the problematic of globalization. He is the author
(with Franzois Nielsen) of "Income Inequality,
Development, and Dualism: Results from an Un-
balanced Cross-National Panel" (American So-
ciological Review, vol. 60, 1995, pp. 674-701).
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