Abstract This paper is to discuss the implications of developing countries. The developing world has implications in the overall economic prosperity. Globally, it is reported that the top 1 percent of income recipients receive about 15 percent of worldwide income, and the top 5 percent receive 40 percent of all income. Meanwhile, the poorest 20 percent receive only 1 percent of the global income. This paper attempts to unlock the significant factors that affect income inequality. In 1963, Simon Kuznets derived the inverted U hypothesis from which he inferred that through the course of development, as per capita income increases, initially, income inequality will increase before it starts to improve. In this paper, I will be using data on 61 countries, an inverted u pattern is found. The labor surplus model supports that the share of labor in industry and high population growth rates explain the inverted U.

Economic Disparity

Economic growth refers to a rise in national per capita income and product. However, economic growth does not mean that there is improvement in mass living standards. It can be a result of increase of wealth for the rich while the poor have less or no improvement in their living standards (Gillis, 70). This uneven distribution of income is referred to as income inequality. There is much income inequality existing in individual countries as well as globally. Globally, it is reported that the top 1 percent of income recipients receive about 15 percent of worldwide income, and the top 5 percent receive 40 percent of all income. Meanwhile, the poorest 20 percent receive only 1 percent of the global income (Braun, 49). There was much interest in income inequality in developing countries in the 1960's which diminished as these countries became faced with greater problems including declining growth rates and the debt problem (Gillis, 72). Today, income inequality remains an important issue because it concerns human welfare. Measures of income inequality give insights into the extent of poverty in countries and are guides for both local and international organizations concerned about the improvement of living standards of the very poor. According to the pattern, moving from low-income economies ($0-500, World Bank (W.B) 1988) to lower-middle economies ($500-2200, W. B 1988), income inequality should increase. Starting from about upper middle-income ($2200-6000, W. B 1988) onwards, income inequality should decrease (Poulson, 150). A pattern on the other hand would show a relationship between variables but does not assert that a change in one variable is the cause of a change in another variable. Since every country develops in a unique way, patterns are often used in development economics, because they provide a basis for comparative analysis in order to make generalizations about the development Effect of Increasing Share of Labor in the Industrial Sector. Often when industrialization begins in a country, the industries require a significant amount of labor which must come from the rural sector. When labor migrates to the urban sector, production in this sector increases and the economy grows. Moreover, the urban sector has other benefits for workers who migrate, including access to services like public schools and health services, which enhance human capital and facilitate higher income. As will be discussed below, this rural to urban migration also affects income inequality.
The Two-Sector Labor Surplus
It is assumed that before development takes place a nation is primarily agrarian and that surplus labor exists. Because land is fixed in supply and the supply of agricultural labor varies, as labor increases, initially agricultural output will increase until diminishing returns set in. Then, additional labor will not increase output, and the marginal productivity of labor will be zero. This situation indicates the existence of surplus labor. Since wage is a function of marginal productivity, wages will be constant whenever there is surplus labor. In a country that is at its early stages of development, this constant wage is the subsistence wage (Gillis, 54-59). According to the two-sector model, the start of industrialization marks the start of development. Industries need workers, and given the initial surplus of labor in the agricultural sector, the industries attract workers from the agricultural sector by paying a constant wage which is slightly higher than the subsistence wage.
When surplus labor ceases to exist in agriculture, further increases in demand for labor by industries will lead to higher wages in the industrial sector and at the same time workers in the agricultural sector become better off since the supply of agricultural labor is decreasing. Thus there will be an improvement in the overall level of income inequality.
Workers in the industrial sector are no longer producing their own food, causing the demand for agricultural products to increase and consequently the price of these products to be higher. Moreover, the available land per worker in the agricultural sector is rising and thus the marginal productivity of labor in the agricultural sector also rises. Increasing marginal productivity in the agricultural sector implies that wages in this sector are also rising. Thus to attract more workers from agriculture, industries must offer even higher wages than those existing in the agricultural sector (Gillis, 53). That is, the labor surplus model supports the inverted U. Because the labor surplus model is based on the migration of labor to the industrial sector, it supports the argument that the share of labor in industry should first increase then decrease the level of income inequality. The Effect of Population Growth Rates it is stated that one reason why developing countries have high degrees of income inequality at relatively high levels of industrialization is because of rapid population growth in these countries (Dovring, 91). Countries like South Korea and Taiwan that have succeeded in improving income distribution adopted measures to control population growth as one ofthe necessary tools (Frank, 102). . An economy with a low population growth rate will have a lower intercept than a country with high population growth rates. That is, the higher the intercept ofthe inverted U curve of a country, the higher the level ofincome inequality for any given PCY. Strong support for the argument that high population growth rates are positively related to the level of income inequality is provided by the two-sector labor surplus model and the theory of supply and demand. Education is important because it allows people to contribute effectively towards the growth of the economy. Education also improves the level of income inequality by eliminating skill differentials which reduce wage differentials. This is because education facilitates higher labor productivity which leads to higher labor income.

Conclusion
This result is significant and posits that when a developing country begins its development process and PCY increases, the initial worsening of income inequality is inevitable. Thus for countries with PCY up to about $300, a worsening trend of income inequality can be accepted as an initial phase that accompanies development. Thus a 1.15 percentage increase of labor in the industrial sector causes the gini coefficient to rise by about a tenth. This result is also significant and implies that about a 9 percent increase of labor in industry will cause the level of income inequality to be at the highest possible level. Therefore, the results suggest that developing countries within PCY Group I should not only concentrate on the developing the industrial sector but should simultaneously concentrate on developing the agricultural sector. That way, they may be able to reduce the amount of migrants from agriculture into industry. How much income inequality exists at the early stages of development depends significantly on population growth rates. The higher the population growth rate, the higher is the level of income inequality at each PCY.

References
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