This paper dwells on the premise that income inequality has its roots in the variable income earning capability of sellers of labor services in the labor market. Rapid structural transformation in a developing economy paves the way for labor to earn higher income in the Secondary and Tertiary sectors, compared to the Primary. Labor market deregulation should spur more employment opportunities in Kerala State, because of the expectation that more investment will be attracted there to absorb a talented and educated labor force, at present (in 2012-13) suffering from the highest unemployment rate in India.