Measuring Social Capital and Its Economic Impact

This paper assesses the quality of various micro level measures of social capital. It begins by examining a simple model of social capital accumulation in which households acquire social capital by devoting resources to forming relationships with other households. Through these relationships households acquire access to social resources which raises utility for any level of consumption. Tests of the model reveal that there is no statistically significant relationship between widely used proxy variables for social capital, measures of trust and group membership, and access to social resources. However, variation in measures of the frequency of contact with family members and friends is positively related to differences in access to social resources. The paper then tests whether evidence that social capital has a significant economic impact depends on the use of these different measures of social capital. It does so by investigating whether the impact of the average level of human capital on individual wages is an increasing function of a person’s social capital. The impact on wages of the share of the population within a city or county that has a bachelor’s degree is indeed an increasing function of the frequency of contact measure, but it is unrelated to the measures of trust and group membership.