September 2018

The core of mainstream economics is rational choice theory. According to this theory, the guiding principle of human behavior and decision making is that individuals maximize their own self-interest.

Rational choice theory provides the foundation for the idea that for-profit businesses maximize profits and efficiency. Profit is the ultimate goal, but in a competitive market the surest way to maximize profits it to maximize the efficiency of the business.  Competitive discipline plus rational choice results in organizational efficiency.

As critics have long pointed out, rational choice theory is based on heroic assumptions: that individuals have perfect information and computerlike information processing capability, which are used to maximize utility. Economists justify maintaining these assumptions because rational choice models allegedly produce accurate predictions. (They don’t, but that’s another story.)

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People who earn post-secondary degrees have better lives than those who do not. They get better jobs, earn more money, are healthier, happier, and are more civically engaged.

In the popular imagination—and research literature—it is through education that people from poor backgrounds improve their socioeconomic status. Education is an essential part of the American meritocracy.

If you want to improve someone’s life, send them to college!

But everyone involved with higher education—and a large number of people outside of it—are aware of college graduates who are underemployed, or working in relatively low-skilled jobs. Jokes aside, about humanities majors working in restaurants, anyone who spends time around young adults knows some who struggle to find work commensurate with their education.

In a recent study, I found that more recent cohorts of college-educated adults are struggling to find high-skilled jobs. There are too many college graduates for too few skilled jobs.

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As the economy emerges from the recession, headlines such as “unemployment rate at record low” or “thousands of jobs added to the economy” fill the news sources. These are seemingly great news—not just for the economy, but also for individuals and their families who have experienced or could experience unemployment.

Sociologists and economists have shown that jobless men suffer from psychological problems and depression, but the damage doesn’t stop there—so do their spouses. Likewise, women feel unhappier when they lose their jobs. Although they suffer these effects alone; the well-being of their male spouses doesn’t change when they lose their job.

What the headlines don’t tend to report is that the new jobs behind the declining unemployment rates are often temporary. At best, they are one- or two-year fixed-term positions, or worse, they are casual, seasonal, or offered via a temp agency. So it is questionable how much better it is to have a temporary job that will end soon, compared to being jobless.

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Since 2014, global energy related carbon dioxide emissions have stagnated while the global economy has grown, ushering in the era of “decoupling.” The International Energy Agency (IEA) attributes this phenomenon to increases in renewable energy consumption, shifts from coal to natural gas, enhancements in energy efficiency, as well as structural changes in the global economy.

The first three of these factors have a clear association to decoupling. For instance, one may expect decoupling of economic growth and emissions, if the share of energy consumption from renewables increases. Similarly, enhancements in energy efficiency should reduce emissions, assuming there is no corresponding increase in energy consumption, which is referred to as the rebound effect (However, colleagues and I have critiqued these assertions; see links above.)

Structural changes in the global economy, also cited by the IEA, are more complex than these other factors contributing to decoupling. What are “structural changes in the global economy”? Have there been changes in how wealth is accumulated? If so, are these changes deliberate? Is growth in the global economy shifting to different nation-states? If so, which ones?

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Over the past forty years, the growth of the criminal justice system in the United States has had many damaging consequences for individuals, ranging from economic hardship to health and family problems. Nobody doubts that getting involved in the criminal justice system affects one’s future life chances, especially because prospective employers (and even institutions of higher education) are increasingly requiring applicants to disclose any criminal past.

But isn’t this really just a problem for serious criminals serving time in prison or for poor people, who lack the financial resources to buy their way out of any problems with superior legal representation and who are more likely to be involved in the criminal justice system in the first place?

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“I’m sorry, but so and so’s brother needed to get hired. Shit happens,” Karen recounted, with resignation, a time her boss denied her a promotion.

Karen is a white woman who works at a hedge fund, a private financial firm. She continued, “When there’s big money, greed, power, people protect their own. And sometimes it’s the guy in the parish, the guy in the corner [office], the guy in the whatever.”

Karen’s account provides insight into why firms run by white men manage 97 percent of hedge fund assets­—a $3.55 trillion industry. Moreover, she sheds light on why these elite men have amassed riches.

Indeed, I find that gender and racial inequality provide a key to explaining why hedge funds drive the divide between the rich and the rest. Since 1980, U.S. income inequality has skyrocketed, in part due to mushrooming pay in financial services. Hedge fund managers are well represented among the “1 percent” with average pay of $2.4 million. Even entry-level positions earn on average $372,000. ($390,000 is the threshold for the top 1 percent of families.)

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Female leadership is a crucial agenda item for major corporations. Over the past years, the perception of female leaders has improved, along with the increased participation of women in the workforce. However, for many people, the mental model for leader still fits the phrase “think manager—think male”. Likewise, a large-scale survey of the German socio-economic panel shows that women are still falling behind when it comes to high-level promotions.

The negative attitude towards female leadership not only affects how women are perceived in their leadership role, but also negatively influences the performance of their subordinates. In our research, we set out to understand the processes that keep this negative image in place, and investigated whether a respectful leadership strategy could counter the effects.

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A core belief of many Americans is that society should provide equal opportunity to its members. Embedded in this belief is the idea that hard work is rewarded and that everyone has a chance of success regardless of the circumstances of their birth; many people refer to this as the American Dream. Unfortunately,

In the U.S., 42 percent of adult men whose parents were in the bottom income quintile when they were born remain in the bottom quintile as adults. 62 percent of U.S. men and women born into the top quintile remain in the top two-fifths as adults. Economist Richard Burkhauser and his colleagues describe this phenomenon as “stickiness at the ends.” Our study provides insight into processes that help maintain stickiness and foster social mobility at the bottom.

Low- and moderate-income families face constraints that limit their choices. For example, exploitative subprime mortgages and the Great Recession resulted in Black and Latino families losing more than 50 percent of their wealth between 2005 and 2009, compared to 16 percent for White families. Based on current trends, scholars calculate that it will take 228 years to close the wealth gap between Black and White families and 84 years to close the gap between White and Latino families.

These issues frame our research and allow us to focus on how low- and middle-income families take advantage of social mobility pathways generally reserved for the middle class. Sociologist Glen Elder describes agency as the “choices and actions [individuals] take within the opportunities and constraints of history and social circumstances.” This study examines how some low- and moderate-income families are able to build assets and move to reasonably-priced rental housing in safe neighborhoods with good schools and other amenities, while others are stuck in place.

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