Social capital and household income distributions in the United States: 1980, 1990

Abstract This paper asked if changes in social capital influence the level and disparity of household income in the United States. Social capital is defined in this paper as one's sympathy (antipathy) for others and one's idealized self. Changes in social capital are expected to produce the following economic consequences. First, increases in social capital are expected to alter the terms of trade and to increase the likelihood of trades between friends and family. Second, increases in social capital are expected to increase an economic agent's concerns for the external consequences of his or her choices, internalizing what otherwise would be considered externalities. Third, increases in social capital between firms are expected to increase the likelihood that they will act in their collective interest. Fourth, increases in social capital are expected to increase the opportunities for specialization and the likelihood of trade. Finally, increases in social capital are expected to raise the average level of income and reduce the disparity of income. This paper empirically tested the relationship between changes in social capital indicator variables and changes in the average and coefficient of variation (CVs) of household income. State CVs and averages of household income were calculated for all 50 states and for different races/ethnic groups using the U.S. Census data for 1980 and 1990. Social capital indicator variables selected to measure changes in social capital included measures of family integrity including the percentages of households headed by a single female with children; educational achievement variables including high school graduation rates; crime rate variables including litigation rates; and labor force participation rates. The social capital indicator variables appeared to be significantly correlated with each other. However, in 1980, the percentages of households headed by a single female with children was not significantly related to the birth rates of single teens. By 1990, however, a strong correlation was found between the percentages of households headed by a single female with children and the birth rate of single teens. Income inequality among U.S. households measured using CVs increased between 1980 and 1990 in all 50 states. The largest increase in CVs was among white households. The smallest increase in CVs was among Asian households. The states with the largest increase in the ratio of 1990 and 1980 CVs were Arizona, Wyoming, Maine, Vermont, and Texas. Half of the states reported decreases in real household income between 1980 and 1990. Those states with the largest percentage decrease in real income were Wyoming, Alaska, Montana, Louisiana, and West Virginia. The largest percentage increase in real income was reported by Connecticut, New Jersey, Rhode Island, and Massachusetts. State CVs and averages of household income were regressed on four factors or subsets of social capital indicator variables. The four factors used to predict CVs and averages of household income were generally statistically significant. The findings of this report support the conclusion that changes in social capital have a significant effect on the disparity and level of household income.