On Social Capital

A primer on an essential concept in social science research

Why youth need social capital and how schools can help. Getting Smart. (2021, August 10). Retrieved April 27, 2023, from https://www.gettingsmart.com/podcast/why-youth-need-social-capital-and-how-schools-can-help/

Social Capital refers to the strength of relationships and communities (networks) formed amongst people in order for a society to function effectively. It varies amongst cultures; in the East it can be seen through generational family and social ties, while the West can see it through community ownership and welfare policy. Through Opportunity Insights, a Harvard-run think-tank-  we measure three types of social capital in each neighborhood, high school, and college in the United States.

1. Economic Connectedness: The degree to which low-income and high-income people are friends with each other

Unlike economic connectedness, measures of network cohesiveness and civic engagement are not strongly associated with upward mobility. There are many communities that have tightly knit friendship networks (e.g., where one’s friends also tend to be friends with each other) or that have high levels of civic engagement (e.g., high rates of volunteering) yet have low levels of upward mobility. 

2. Cohesiveness: The degree to which social networks are fragmented into cliques

3. Civic Engagement: Rates of volunteering and participation in community organizations 

Although such forms of “bonding” social capital may be important for other outcomes, the type of social capital that matters most for upward income mobility is cross-class interaction—a form of “bridging” social capital. The degree of cross-class interaction in the Opportunity Insights datasets, via the measurement of economic connectedness, was taken by calculating the share of high-income (above-median) friends among low-income (below-median) people.

The social disconnection by class is due in equal part to segregation by income across social settings and friending bias within settings, the tendency for people to befriend people similar to them. Growing up in a more connected community may improve children’s chances of rising up through a variety of mechanisms, from shaping career aspirations and norms to providing valuable information about schools and colleges to providing connections to internship and job opportunities. Both segregation and friending bias are shaped by the structure of institutions and can be reduced through targeted changes in local policies. However, even if all schools, neighborhoods, and other groups were perfectly integrated by socioeconomic status, the social disconnection between low- and high-income people would persist because of friending bias within groups.

A second study coined on Social Capital, by the Harvard economists at Opportunity Insights, led to the formation of Social Capital II: Determinants of Economic Connectedness. This measurement uses Facebook data on SES (Socioeconomic Status) differences between high SES and low SES individuals, to investigate cross-socioeconomic-status integration and friending bias. It supports and builds upon the analysis of census data on Social Capital I: Measurement and Associations with Economic Mobility. 

What role does Social Capital have in the formation of ESOPs (Employee Owned Companies)?

According to the Robert Wood Johnson Foundation, work provides income and benefits that can enable us to form the social connections that help us to thrive. ESOPs enable workers to own a share in a business and create a financial safety net. Among retirement-age households in the U.S., only 1/5th of Black households and even fewer Latino households own retirement savings. When employee owners retire, they are able to cash out their shares to their employees—allowing the employees to have assets. When workers feel they share in their employer’s profits and are empowered as genuine stakeholders in the company they work for, the result tends to be a more resilient company that fosters quality jobs within communities. We can help create more ESOP-friendly zones through policy that increases cohesiveness and engagement- while ESOPs themselves can encourage their employees to take part in civic and democratic decisions while fostering a sense of otherwise missing social connectedness amongst the people. 

Sources:

Morrissey, Monique. “Chapter 2. Retirement.” Economic Policy Institute, https://www.epi.org/publication/chapter-2-retirement/.

“Policy Solutions to the American Dream.” Opportunity Insights, 18 Jan. 2023, https://opportunityinsights.org/.

“Reducing the Racial Wealth Gap by Increasing Employee Ownership.” RWJF, https://www.rwjf.org/en/insights/our-research/2022/12/reducing-the-racial-wealth-gap-by-increasing-employee-ownership.html.