Relationship between economic development and income distribution

Relationship between economic development and income distribution – Since the emergence of human capital theory in the early 1960s more and more studies are done to examine the inequality of earnings based on this theory. The development of microdata and computers seem to have made the human capital model much more popular than would have been otherwise. The amount of literature in this area is now very large. Moreover, the research is not confined to developed countries.

Among others the screening theory and the labor market segmentation theory look like the strongest candidates to challenge the orthodox position of human capital theory. After a decade of lively battle between competing theories it is now apparent they are more complementary than mutually exclusive. In the following analyses of wage inequality we will heavily borrow the analytical tools in these fields, i.e., income distribution and labor economics.

There are plenty of reasons why we focus on wages instead of total income. First of all, there already exist a comfortably large number of studies on income distribution in South Korea despite the paucity of the income distribution data. With a few exceptions most of them have dealt with overall income distribution, naturally, paying not sufficient attention to each of the categories of income, farm income, urban labor income, property income etc.

Of course some analyses have been made for example by decomposing the total income into several categories. But sufficient in-depth analysis on each of the categories does not exist. Now that we have studied the total income distribution in South Korea almost exhaustively using the limited data available it is time to concentrate more on each of the categories of income. When it comes to wage distribution the picture is startlingly different. We have only a few in-depth studies on wage inequality in South Korea despite the fact that so many people are paying lip service to the importance of the issue.