Reconsidering Social Capital: A Latent Class Approach

Abstract

Social capital has proven to be a useful concept, but has been ill-defined and not well-measured in the economics literature. We propose a different empirical method for measuring social capital, latent class analysis, based on the idea that social capital is an unobservable multidimensional construct. We explain and demonstrate the construction of latent classes that measure an individual's social capital using data from the General Social Survey. We then show our proposed method allows meaningfully different conclusions about the accumulation of social capital than those obtained by previous research. Specifically, we present evidence consistent with the hypothesis that higher income influences social capital accumulation because of a higher opportunity cost of time. In addition, we find evidence for complementarities in social capital accumulation within an individual's peer group.

Keywords: social capital, human capital, networks, latent class analysis

JEL Classification: J24, O17, C4, D71, H40