Social determinants of work
Research Summary

It’s Not Always What You Know, It’s Who You Know: The Role of Social Capital in Economic Connectedness and Mobility

Joe Peck June 14, 2023
Source: National Bureau of Economic Research Title: Social Capital I: Measurement and Associations with Economic Mobility and Social Capital II: Determinants of Economic Connectedness Author(s): Raj Chetty, Matthew O. Jackson, Theresa Kuchler, Johannes Stroebel, Nathaniel Hendren, Robert B. Fluegge , Sara Gong, Federico Gonzalez, Armelle Grondin, Matthew Jacob, Drew Johnston, Martin Koenen, Eduardo Laguna-Muggenburg, Florian Mudekereza, Tom Rutte Original Publication Date: July 2022 Read Full Research Article

The United States is more materially unequal than almost any other country in the developed world. Wage inequality has consistently grown since the 1970s and shows no sign of improving anytime soon.

Several factors contribute to this trend, including a weak social safety net and stagnant wages for the lowest earners. But a groundbreaking study from a team led by Harvard economist Raj Chetty focuses on individuals’ social capital—the collection of (not strictly economic) social connections they have. The researchers sought to find out how the number and strength of people’s relationships (two components of social capital) across different socioeconomic groups shape their economic situation. In simple terms, if you have higher-income connections, are you more likely to earn a higher income or achieve economic mobility yourself?

Using newly available data from Facebook, the research team analyzed over 21 billion social network connections to better understand how people’s relationships shape their economic situation. They find that not only do social connections matter for economic mobility but they are also more predictive than other factors.

Previous research suggests that children raised in high-income neighborhoods are more likely to live in a better economic situation as adults than children from high-poverty neighborhoods. Other research suggests that Americans from different socioeconomic groups do not interact as much as they used to. The new social capital papers from Chetty and colleagues aim to connect these two ideas together. They discover that high-income and wealthier neighborhoods tend to foster economic mobility not because their residents are more prosperous but because they offer more chances for people with low incomes to make connections with their higher-income contemporaries.

The advent of social media has lent researchers new ways of understanding the contributing factors to economic trends. Chetty and the team worked with data analysts at Meta (the parent group of Facebook) to analyze 72 million US-based Facebook users, ages 25–44. These users account for 84 percent of this age bracket in the US and had 21 billion connections between them. From these data, the researchers analyzed a user’s location and other information, such as age, gender, college, relationship status, price of their phone, usage on a computer rather than a phone, in addition to zip-code-specific tax data, to calculate the socioeconomic status of a user and their friends.

Key findings

  • Economic connectedness is an extremely important factor in economic mobility. If a child in a family with low income has a high number of friends in families with higher incomes, the child would have high economic connectedness and therefore a greater chance of economic mobility.
  • If a child in a high-poverty household grew up in a neighborhood with the same economic connectedness as a child in a high-income neighborhood, his income would increase 20 percent on average in adulthood compared to a child without those connections.
  • Facilitating children from different socioeconomic groups to be in the same spaces (whether it is a church or high school) matters for cross-socioeconomic integration, but there is no guarantee they will become friends.
  • People with different socioeconomic statuses are more likely to become friends when mixing in small groups and less racially diverse groups.
  • People with lower incomes make a higher percentage of their friends within their neighborhoods than people with high incomes, who make a larger share of friendships in college.
  • People from different or socioeconomic groups make a fairly equal percentage of friends in the workplace and in high school.
  • Economic connectedness is a strongly predictive factor for economic mobility across gendered, racial, and geographic lines.

One potential limitation of the studies is that they do not analyze differences in economic mobility between races. Black workers, in particular, face lower pay and lower economic mobility in work than white workers because of racial discrimination and occupational segregation.

The researchers encountered limitations in the data—Facebook does not record the race or ethnicity of its users. In a recent talk on the topic, Chetty addressed the lack of attention on race in the papers on the grounds that if you look at places that are predominantly white or Black, economic connectedness within a single racial or ethnic group strongly influences economic mobility. At the same time, the researchers also acknowledge that because of structural racism and occupational and residential segregation, Black people are less likely than white people to have high levels of economic connectedness. Ultimately, though, they argue that economic connectedness or social connections to people with higher incomes—and not race—is a better predictor for economic advancement.

Policy and practice implications

Based on this study’s findings, WorkRise identifies the following implications for policy and practice. 

One way to increase economic connectedness (relationships across socioeconomic lines) is to ensure that people from different socioeconomic groups are in the same environment. For this reason, school integration, affirmative action in colleges, zoning law reform in neighborhoods, and mixed income housing can all help break down segregation across economic and racial lines.

Then comes the second (and arguably harder) part: helping people break down the biases they have against people in socioeconomic groups different from their own. When people mix, it is helpful for economic connectedness, but equally crucial is that they develop relationships with the people they interact with.

In response, policymakers might pursue initiatives to alleviate the burden of work and allow time for play as well as fund communal efforts to foster neighborhood improvement. Specific policies, like abolishing dues for extracurricular sports clubs, have been proven to help children from different socioeconomic groups foster relationships with each other. Researchers have also suggested a number of unique, almost quirky, initiatives to improve social connectedness, such as a recent paper that spotlighted community-owned pubs as a potential solution. There are a great many examples of programs that have helped bridge the gaps between socioeconomic groups, such as the Dudley Street Neighborhood Initiative in Boston and the Valley Interfaith program in the Rio Grande valley, any one of which would, per this new research, help facilitate economic connectedness and economic mobility for people experiencing poverty.

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