In economics, a Kuznets curve represents graphically the hypothesis advanced by Simon Kuznets in the 1950s and 1960s that as an economy develops, a natural cycle of economic inequality occurs, driven by market forces which at first increase inequality, and then decrease it after a certain average income is attained.
One explanation of such a progress suggests that early in development investment opportunities for those who have money multiply, while an influx of cheap rural labor to the cities holds down wages.
The Kuznets curve implies that as a nation undergoes industrialization – and especially the mechanization of agriculture – the center of the nation’s economy will shift to the cities. As capitalism causes a significant rural-urban inequality gap , rural populations are expected to decrease as urban populations increase, due to people migrating to cities in search of income. Inequality is then expected to decrease when a certain level of average income is reached and the processes of industrialization – democratization and the rise of the welfare state – allow for the trickle-down of the benefits from rapid growth, and increase the per-capita income. Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita.