A preliminary model of community economic development processes, consisting of a system of simultaneous equations, is used to describe how these processes influence changes in median family income and income inequality. The analysis was performed on 61 racially mixed counties in Alabama, using 1960-70 census data. Social and demographic variables used were a Gini Index of Income Inequality in 1960 and changes in labor-force participation, manufacturing, managers, and in white and black shares of male employment. Other variables were measures of 1960-70 income distribution, 1960 median family income, proportion of black male labor force in 1960, professionals, high school education, and female-headed families. The model suggested that in urban communities, income distribution patterns are favorably influenced by division of labor at professional and managerial levels, while in low income communities, manufacturing is the path to increased median incomes. Increase in labor force participation was the key to average increase in median income and reduced income inequality in middle and lower-middle class communities. Racial disparities were evident in all cases, but in all communities, increases in education led to increased incomes and indirectly to reduced income inequality. This indicates that strategies for rural community development should be related to schools and education. (RS)