# What Is Social Economics, and How Does It Impact Society?

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*Economics Basics .*

> **Definition**
>
> Social economics is a branch of economics that studies the relationship between economic activities and social behaviors within a society

## What Is Social Economics?

Social economics, also known as socioeconomics, is a branch of economics that examines how social behavior and economic activity influence each other within a society. It explores how different social groups or socioeconomic classes make economic decisions and interact.  

### Key Takeaways

*   Social economics, as a field of study, attempts to explain the interaction between social behavior and economic activity in society.
*   Social economic theories and studies explore how different social groups or socioeconomic classes make economic decisions.  
    
*   The study of social economics and the resulting conclusions can create awareness of income inequality and economic mobility, often resulting in policies.
*   Social economic studies can influence society by shaping financial behaviors, government policies, and corporate policies.

## Understanding Social Economics

The field of social economics applies traditional economic theories to social issues, assuming that individuals make rational choices based on incentives. This perspective, pioneered by economists like Gary Becker, extends economic modeling to areas such as crime, marriage, and education, treating these decisions as economic transactions influenced by costs and benefits.

Social economics is closely tied to the study of institutional economics, which emphasizes the role of institutions—laws, customs, and social norms—in shaping [economic behavior](https://www.investopedia.com/terms/b/behavioraleconomics.asp). Social economics builds on institutional economics by focusing more deeply on how those norms and institutional practices affect different social groups.

Two other semi-related fields are behavioral economics and social psychology. Both challenge the idea that individuals always act rationally in economic situations. Social economics tie these together by examining how social identity, cultural norms, and structural inequality shape "normal behavior" for any given demographic.

## How Does It Impact Society?

The study of social economics can impact society by influencing behaviors, policy decisions, and resource access. For example, many people lack financial literacy. In response, nonprofits and governments created tailored financial education programs that teach budgeting, saving, and credit management. It is because of the study of social economics that these programs exist and resources were allocated accordingly.

One of the most significant ways the study of social economics affects society is by identifying issues regarding income inequality and [economic mobility](https://www.investopedia.com/articles/economics/09/labor-mobility.asp). Differences in education, job opportunities, and social networks often create gaps in earnings, financial literacy, and wealth accumulation. Those born into higher-income families typically have better access to quality education, healthcare, and job opportunities, reinforcing economic disparities. By understanding societal trends through the study of social economics, universities often extend specific scholarships to certain at-risk demographics.

Consumer behavior is another area in which the study of social economics plays a role. Social norms, peer influence, and advertising shape how individuals spend and save money. For example, in societies that prioritize financial security, people tend to save more, whereas in consumer-driven economies, spending and debt levels are higher.

In addition, government policies are often guided by socioeconomic principles to balance economic growth with social welfare. Policies like minimum wage laws, unemployment benefits, and public healthcare programs aim to support lower-income groups and reduce poverty. These policies are usually supported by socioeconomic frameworks that highlight specific areas of need.

## Social Economics and Social Classes

The field of social economics links economic and social class, highlighting how [different social groups](https://www.investopedia.com/social-dynamics-and-your-economic-reality-11753972) make financial decisions based on their unique circumstances and resources.

Economic class often determines access to critical resources like jobs or access to medical facilities. Those with higher incomes typically have more opportunities, while those with lower incomes may struggle with basic needs. This creates a divide in financial outcomes and perpetuates [inequality](https://www.investopedia.com/articles/investing/110215/brief-history-income-inequality-united-states.asp), as individuals with lower incomes may face challenges in achieving upward mobility.

[Social class also shapes economic behavior](https://www.investopedia.com/terms/s/social-economics.asp) through the lens of cultural values, expectations, and peer influences. People from certain backgrounds may prioritize wealth-building activities, while those from other backgrounds might focus more on immediate financial concerns. These differing priorities stem from the access to resources and security that individuals experience based on their social class. They are also influenced by the resources provided to them by governments or socially responsible businesses.

## Example of Social Economics

In 2020, unemployment insurance played a role in mitigating hardships faced by many during the COVID-19 pandemic. Unemployment insurance benefits lowered the overall poverty rate by 1.4 percentage points, bringing it down to 11.4%. According to the same U.S. Census survey, an additional 4.7 million people would have been impoverished.

Also related to the intersection of governments and social economics, the [Organisation for Economic Co-Operation and Development (OECD)](https://www.investopedia.com/terms/o/oecd.asp) has assessed the economic and social impact of open government, highlighting how transparency and accountability can improve governance and economic outcomes. Open government reforms have been shown to enhance trust in government, reduce corruption, and promote economic growth by fostering a more favorable business environment.

Another example of social economics could be the development of circular economies. The circular economy is a socio-economic model that aims to reduce waste and pollution by keeping materials in circulation through processes like recycling and reuse. This approach supports sustainable development and can create jobs while addressing environmental challenges. It's estimated that the global circularity rate (the global rate of reusing resources) was 7.2% in 2024 (down from 9.1% in 2018), meaning 7.2% of the materials used in the global economy are recycled or reused.

Lastly, social enterprises are businesses that prioritize social objectives alongside financial sustainability. They often focus on benefiting marginalized communities by providing essential services or products while still operating a business that generates a profit. For example, Warby Parker donates glasses to those in need for every pair sold.

## The Bottom Line

The field of social economics attempts to examine how social behavior and economic activity are related within a society. It focuses on how different social groups make economic decisions.

Scientists in the field may impact society with the results of their studies, addressing financial behaviors, policy effectiveness, and resource access, particularly in areas like income inequality, economic mobility, and consumer behavior.   

> **Article Sources**
>
> 1.  Heckman, James. "[Gary Becker: Model Economic Scientist](https://www.aeaweb.org/articles?id=10.1257/aer.p20151106)." _American Economic Review_, vol. 105, no. 5, May 2015, pp. 74-79.
>     
> 2.  Behrman, Jere, et al. "[How Financial Literacy Affects Household Accumulation](https://www.aeaweb.org/articles?id=10.1257/aer.102.3.300)." _American Economic Review_, vol. 102, no. 3, May 2012, pp. 300–304.
>     
> 3.  Finkelstein, Daniel, et al. "[Economic Well-Being and Health: The Role of Income Support Programs In Promoting Health and Advancing Health Equity](https://www.healthaffairs.org/doi/epdf/10.1377/hlthaff.2022.00846)." vol. 41, no. 12, _Health Affairs_, Dec. 2022, pp. 1700-1706.
>     
> 4.  Zajacova, Anna, et al. "[The Relationship Between Education and Health: Reducing Disparities Through a Contextual Approach](https://www.annualreviews.org/content/journals/10.1146/annurev-publhealth-031816-044628)." _Annual Review of Public Health_, vol. 39, April 2018, pp. 279-289.
>     
> 5.  Romich, Jennifer, et al. "[Coupling a Federal Minimum Wage Hike With Public Investments to Make Work Pay and Reduce Poverty](https://www.jstor.org/stable/10.7758/rsf.2018.4.3.02?seq=1)." _The Russell Sage Foundation Journal of the Social Sciences_, vol. 4, no. 3, Feb. 2018, pp. 22-43.
>     
> 6.  United States Census Bureau. "[Did Unemployment Insurance Lower Official Poverty Rates in 2020?](https://www.census.gov/library/stories/2021/09/did-unemployment-insurance-lower-official-poverty-rates-in-2020.html)"
>     
> 7.  Organisation for Economic Co-operation and Development. "[The Economic and Social Impact of Open Government](https://www.oecd.org/en/publications/2021/12/the-economic-and-social-impact-of-open-government_180b941c.html)."
>     
> 8.  Circle Economy. "[The Circularity Gap Report 2024](https://www.circularity-gap.world/2024)."
>     
> 9.  Warby Parker. "[The Whole Story Begins With You](https://www.warbyparker.com/buy-a-pair-give-a-pair)."