ABSTRACT
Industrial transformation, that is, change in what is produced and how it is produced, is manifested in a changing income distribution: who gets what and how. As economies shift from agricultural to industrial modes of production, they first experience an increasing inequality; subsequent movement toward greater equality, which is reflected in a growing middle-income sector, occurs as industrialization advances. This chapter explores why the issue of structural change has come to be the fundamental concern in the debate over the disappearing middle class and examines the evidence of its impact on the earnings distribution at the national level. The benefit of increased trade between countries, as suggested by international trade theory, is that a nation can maximize its comparative advantage by concentrating on the selling of those goods and services it produces most efficiently. Throughout much of the postwar period, the United States' comparative advantage across industries was so broad that the nation dominated the postwar international economy.
