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RSF Review

RSF Review

Community Well-Being and the Great Recession

May 15, 2013

Our partner website, Recession Trends, has published a report on how the Great Recession has impacted neighborhoods in America. Here is an excerpt:

Although most research has focused on individual-level outcomes, many of the conventional narratives about the Great Recession are in fact neighborhood-level narratives. In discussing the housing crisis, for example, we don’t just focus on individuals facing foreclosure but on entire neighborhoods that were hard hit by the housing crisis, where one can find house after house on the same streets all in foreclosure. Likewise, the unemployment crisis is often understood to be spatially clustered, with areas that depend disproportionately on construction, manufacturing, and other heavily-affected industries typically presumed to be especially hard hit.

Teaching Financial Literacy: The Case of Compound Interest

Melissa Sions, Russell Sage Foundation
May 9, 2013

Calls for increasing financial literacy have grown louder recently, as the soaring costs of health care and education, high unemployment, and the effects of the Great Recession all converge to strain the budgets of governments, businesses, and individuals. Many agree that financial education benefit those who participate, but the results have been underwhelming. According to a recent column in The Economist, not only is financial literacy a major stumbling block for most people, but interest in—and success in teaching—financial education is incredibly low, regardless of age or life circumstances. Last September, the SEC released its own report on financial literacy among Americans, and its results of which were fairly discouraging. Some argue that the main problem is the ability to engage students in the material, but as we’ve written before, the problem may be more fundamental than that.

In their paper “Misunderstanding Savings Growth,” published in the RSF-funded Journal of Marketing Research, Craig McKenzie and Michael Liersch argue that the failure to begin saving early for retirement—or to reach retirement savings goals—comes down not just to a lack of financial knowledge, but also to gross misunderstandings of how savings grow over time. Conventional economic wisdom holds that people are able to “[calculate] future values and [make] trade-offs with present values.” However, through a series of experiments, McKenzie and Liersch notice that not only do people systematically underestimate how much retirement savings grow exponentially, but that understanding how compound interest works doesn’t always help to motivate them to save earlier.

In fact, what helps the most in motivating people to save is demonstrating the effects of exponential growth. Offered a graphical representation of how compound returns accumulate over time (see below), participants were markedly better able to determine whether early saving would prove beneficial over the course of a career. Not only that, but they were better able to think their way out of the fallacy that saving twice as much later might yield the same returns at the point of retirement. This finding was successful without any interventions that told participants explicitly what compound interest was or how it could be calculated. Interestingly, this approach increased motivation in participants at different stages of their careers. McKenzie and Liersch did experiments with undergraduate students as well as employees at a Fortune 100 company, and found that workers’ reactions to exponential savings growth were similar to those of the undergraduate sample. As the authors point out, this finding indicates that it isn’t an understanding of compound interest that motivates people, but demonstrations of its effects over time.

Favoritism and Racial Inequality

May 7, 2013

racial inequalityThe New York Times has published an essay by RSF author Nancy DiTomaso on the relationship between social networks and racial inequality. In the essay, DiTomaso draws from her research in The American Non-Dilemma, which argues that economic racial disparities are perpetuated not by explicit racism, but by seemingly innocuous processes, such as networking, that institutionalize racial bias:

The mechanism that reproduces inequality, in other words, may be inclusion more than exclusion. And while exclusion or discrimination is illegal, inclusion or favoritism is not — meaning it can be more insidious and largely immune to legal challenges.

Favoritism is almost universal in today’s job market. In interviews with hundreds of people on this topic, I found that all but a handful used the help of family and friends to find 70 percent of the jobs they held over their lifetimes; they all used personal networks and insider information if it was available to them.

The Great Recession and the Racial Wealth Gap

May 2, 2013

The Urban Institute has released a report that analyzes the Great Recession's impact on the racial wealth gap in America. Here is the abstract:

Income inequality understates the size of the economic gap between whites and minorities in the United States. In 2010, whites on average had two times the income of blacks and Hispanics, but six times the wealth. Analyses of wealth accumulation over the life cycle show that the racial wealth gap grows sharply with age. Wealth isn't just money in the bank, it's insurance against tough times, tuition to get a better education and a better job, savings to retire on, and a springboard into the middle class.

The study shows that the 2007-2009 downturn sharply decreased the wealth holdings of white, black and Hispanic families, with Hispanics experiencing the largest decline:

Like a lot of young families,many Hispanic families bought homes just before the recession. Because they started with higher debt-to-asset values, the sharp decline in housing prices meant an even sharper cut in Hispanics’ wealth. As a result, they were also more likely to end up underwater or with negative home equity. Between 2007 and 2010, Hispanics saw their home equity cut in half, compared with about a quarter for black and white families.

In contrast, black families lost the most in retirement assets, while white families experienced a slight increase. On average, blacks saw their retirement assets fall by 35 percent during the Great Recession,compared with a smaller(but still substantial) decline of 18 percent for Hispanic families.

Wealth Disparities Before and After the Great Recession

April 23, 2013

With the support of the Foundation, Fabian T. Pfeffer, Sheldon Danziger and Robert F. Schoeni have published a working paper entitled, "Wealth Disparities Before and After the Great Recession." Here is the abstract:

The collapse of the labor, housing, and stock markets beginning in 2007 created unprecedented challenges for American families. This study examines disparities in wealth holdings leading up to the Great Recession and during the first years of the recovery. All socioeconomic groups experienced declines in wealth following the recession, with higher wealth families experiencing larger absolute declines. In percentage terms, however, the declines were greater for less-advantaged groups as measured by minority status, education, and pre-recession income and wealth, leading to a substantial rise in wealth inequality in just a few years. Despite large changes in wealth, longitudinal analyses demonstrate little change in mobility in the ranking of particular families in the wealth distribution. Between 2007 and 2011, one fourth of American families lost at least 75 percent of their wealth, and more than half of all families lost at least 25 percent of their wealth. Multivariate longitudinal analyses document that these large relative losses were disproportionally concentrated among lower income, less educated, and minority households.

New Paper: On the Origins of Gender Roles: Women and the Plough

April 16, 2013

RSF Visiting Scholar Paola Guiliano has co-published a paper in the February 2013 issue of Oxford Quarterly Journal of Economics, drawing on research undertaken here at Russell Sage on the agricultural roots—and persistence—of gender roles. The abstract begins:

The study examines the historical origins of existing cross-cultural differences in beliefs and values regarding the appropriate role of women in society. We test the hypothesis that traditional agricultural practices influenced the historical gender division of labor and the evolution of gender norms.

Building off of the hypothesis put forth by Ester Boserup (1970), that “gender roles have their origins in the form of agriculture traditionally practiced in the pre-industrial period,” Guiliano and her co-authors gathered data culled from pre-industrial ethnographic data as well as contemporary surveys individuals’ views on gender roles and women’s place in society. In particular, the authors looked for the adoption and persistence of plough agriculture, which requires “significant upper body strength, grip strength, and bursts of power…to either pull the plough or control the animal that pulls it.” Because of such intense physical demands, plough agriculture offered more opportunities for men in agricultural roles, relegating most women to work inside the home. The authors continue:

We find that, consistent with existing hypotheses, the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics, and entrepreneurial activities. Our results hold looking across countries, across districts within countries, and across ethnicities within districts. To test for the importance of cultural persistence, we examine the children of immigrants living in Europe and the United States. We find that even among these individuals, all born and raised in the same country, those with a heritage of traditional plough use exhibit less equal beliefs about gender roles today.

The Political Influence of Economic Elites

April 12, 2013

influence-of-the-richDo the poor have as much say as the rich in the American political system? In the wake of the 2012 Presidential race – the most expensive in history – as well as the landmark 2010 Citizens United case, the political influence of the wealthy has become a much-discussed topic. However, our understanding of how rising inequality has influenced the U.S. political process and the policies it has produced remains limited. While both scholars and citizens suspect economic elites have great influence on politics, social scientists have yet to quantify that influence and identify the causal mechanisms linking elite influence and money to political outcomes.

Emerging empirical evidence has shown some promising pathways for future research. In Affluence and Influence, RSF grantee Martin Gilens of Princeton University shows that America's policymakers respond almost exclusively to the preferences of the economically advantaged. Moreover, a recent paper by political scientist Nicholas Carnes of Duke University demonstrates that the near-absence of the working-class people in public office promotes economic policies that benefit white-collar Americans at the expense of the less fortunate.

To deepen our understanding of the relationship between economic and political inequality, the Russell Sage Foundation launched its Politics of Inequality initiative in 2006. As part of this effort, the Foundation recently created a new working group to expand the research field of economic influence on political life by examining how economic elites have influenced the myriad ways politics is done and the relationship between these processes and inequality. The research questions to be explored through this working group, led by sociologist Shamus Khan and political scientist Dorian Warren of Columbia University, are twofold. First, how do elites use their economic resources to influence political outcomes? And second, how has the increase in inequality over the past forty years—particularly the increase in the wealth/income share of elites—impacted processes of political influence? And how have the outcomes of political influence affected the overall levels of inequality?

New Research Studies Impact of Religious Groups on Immigrants

April 11, 2013

Religious and nonreligious organizations may have a similar impact on the ability of immigrants to acclimate to life in the U.S., despite the organizations’ different motivations for providing charitable services, according to new research from Rice University and the Russell Sage Foundation.

“There’s been a lot of discussion as to whether religious organizations offer some special or unique benefit to immigrant groups that will help them better adapt to American society,” said the study’s lead author, Elaine Howard Ecklund, the Herbert S. Autrey Professor of Sociology and director of Rice’s Religion and Public Life Program. “We wanted to see at the organizational level whether there was any practical difference between these two groups.”

The study examined the behavior of two Mexican-American organizations, one religious and one nonreligious. The two groups identified different motivations for providing job placement, language and financial services to immigrants: The religious organization said its religious convictions necessitated service to the local community, whereas the nonreligious organization cited its commitment to at-risk groups. However, the study showed that there was was little difference in the impact of the two organizations – both sought to provide outreach and services to their respective communities.

The study’s co-author, Michael Emerson, the Allyn and Gladys Cline Professor of Sociology and Kinder Institute co-director, noted that although there is little difference between the organizations at the present time, that may change in the future.

“There may be significant changes as these organizations deal with second- and third-generation Mexican-Americans,” Emerson said. “These individuals might have different concerns, so the mission and services provided by these organizations very well may change.”

The Political Socialization of Adolescent Children of Immigrants

April 11, 2013

Social Science Quarterly has published a new RSF-funded paper that examines the politics of adolescent children of immigrants in the United States. Written by Melissa Humphries, Chandra Muller and Kathryn Schiller, the study "aims to evaluate the adolescent political socialization processes that predict political participation in young adulthood, and whether these processes are different for children of immigrants compared to white third-plus-generation adolescents." Here is a summary:

We use a nationally representative longitudinal survey of adolescents to evaluate the predictors of three measures of political participation—voter registration, voting, and political party identification—and whether the process leading to political participation varies by immigrant status and race/ethnic group.

We find that the parental education level of adolescents is not as predictive for many minority children of immigrants compared to white children of native-born parents for registration. Additionally, the academic rigor of the courses taken in high school has a greater positive estimated effect on the likelihood of registration and party identification for Latino children of immigrants compared to white third-plus-generation young adults.

The process of general integration into U.S. society for adolescent children of immigrants may lead to differing pathways to political participation in young adulthood, with certain aspects of their schooling experience having particular importance in developing political participation behaviors.