Social Capital: A Fresh Way to Look at Minnesota’s Economic Well-Being
Center of the American Experiment released a first-of-its-kind report today addressing how social capital is driving Minnesota’s economic well-being and whether policy changes can increase social capital at the state level. The research is based on new data on social capital from the Social Capital Project from the Joint Economic Committee of Congress. The X-Factor? Social capital and economic well-being: A quantitative analysis is authored by economist John Phelan and investigates the important question of why Minnesota and its neighboring states have such similar levels of employment when they pursue such different economic policies. Social capital is a large part of the answer.
Phelan has already been invited to publish and present this ground-breaking report at the Midwest Economics Association in March of 2024.
Social capital refers to the networks and norms in a society; the connections we have and the things we commonly believe. Phelan explains why higher levels of social capital can be expected to generate higher levels of economic wellbeing. He explains why groups, such as recent immigrants, who are excluded from networks might suffer, even — perhaps especially — in places, like Minnesota, where levels of social capital are high. He also explains how some of the observed differences in economic wellbeing between groups are the result of differences in norms between groups.
To investigate the question quantitatively, John uses a new index of social capital produced by the Social Capital Project. Going deeper, he uses four subindices across 3,000 counties in the United States to measure their relationship with economic wellbeing, as measured by median household income. The report finds that:
- Three of four subindices have a relationship with median household income which is both positive and statistically significant — Family Unity, Community Health, and Institutional Health.
- The strongest coefficient is for Family Unity, which measures the share of births to unwed mothers, the percentage of children living in single parent families, and the percentage of women aged 35-44 who are married. For each one-point increase on this subindex, such as St Louis County rising to the levels of Carlton County, median household income can be expected to increase by $5,100.
On this measure, social capital in America has declined starkly in recent decades. Between 1980 and 2019, the share of children in the United States who lived with married parents fell from 77 percent to 63 percent and more than one in five children now live in a home with a mother who is neither married nor cohabiting. These increases have been largest for minority Americans and Americans with less education.
However devoted single parents are to their children, they have lower levels of both time and, usually, money to “invest” in their upbringing. A vast body of research shows that this leads to worse performance in schools and that these outcomes persist into adulthood. This is a major factor behind growing and entrenched income inequalities in the United States today.
John reviews the literature on the causes of these trends and finds that the two leading hypothesized causes are a decline in the “marriageability” of men driven largely by the decline of well-paying jobs for unskilled workers, and shifts in “social norms.” He also finds, however, that policy can be expected to do little to reverse either of these.
This wide-ranging report touches on some of the major social and economic debates in the United States today: the origins and persistence of racial and sexual disparities in economic well-being as a result of declining Family Unity concentrated among those with lower incomes and ethnic minorities; increased political discord as a result of declining Community Health; a rise in deaths of despair. This report can only summarize the vast body of scholarship on each of these issues, but not for nothing has family fragmentation been described as “the biggest problem we have,” “the largest or second-largest problem in America,” and the “shadow behind all sorts of other problems that people are much more easily conversant about.”
“The societal impact of the fragmentation of the family is a conversation American Experiment has been leading since its founding, and it’s a conversation America needs to have,” said report author John Phelan. “I hope this report adds to the discussion and provides new insights for how Minnesota can improve our economic well-being.”
A copy of the full report can be accessed at www.americanexperiment.org/reports/the-x-factor