What Is Social Economics, and How Does It Impact Society?

What Is Social Economics?

Social economics is a social science and a branch of economics that focuses on the relationship between social behavior and economics. Social economics is also referred to as socioeconomics.

Social economics is primarily concerned with the interplay between social processes and economic activity within a society. Social economics may attempt to explain how a particular social group or socioeconomic class behaves within a society, including their actions as consumers.

Understanding Social Economics

Theories of social economics sometimes diverge from conventional economic theories. They may consider factors that are outside the focus of mainstream economics, including the effect of the environment and ecology on consumption and wealth.

Social economists frequently study the different economic choices by people in different socioeconomic classes. A socioeconomic class is a group of people with similar characteristics. These characteristics can include social and economic standing, level of education, current profession, and ethnic background or heritage.

Different socioeconomic classes may have different priorities regarding how they direct their funds, or they may be unable to afford certain goods or services due to their income limitations. These goods or services can include access to more advanced or complete medical care, educational opportunities, and the ability to buy food that meets specific nutritional guidelines.

Two Perspectives of Social Economics

There are two broad perspectives in social economics. Though opposite in their approach, they can be thought of as complementary. The first, pioneered by Nobelist Gary Becker, applies the basic theoretical and applied tools of neoclassical microeconomics to areas of human behavior that are not traditionally considered part of the economic sciences, such as crime and punishment, drug abuse, marriage, and family decisions.

The second perspective applies the ideas of other social sciences, such as sociology, psychology, and identity group studies to subjects of an economic nature like consumer behavior or labor markets. These practitioners of social economics use history, current events, politics, and other social sciences to predict social trends that could potentially impact the economy. This strand of social economics is the primary focus of this article.

Impact of Social Economics

According to the American Psychological Association, socioeconomic factors may reveal inequalities surrounding wealth, education, or status. These background factors may play a role in a person's life decisions, such as their career, or family choices.

Some of these socioeconomic relationships are explained below:

Families

There are strong correlations between socioeconomic status and family structure, as well as other outcomes such as parenting practices and childhood development. Single-parent households are more likely to be low-income, and low-income households are more likely to suffer from domestic violence and child neglect. These disparities also manifest in worse health outcomes later in life.

Education

Children with lower socioeconomic status tend to enter school with lower levels of reading and linguistic development, as well as lower social skills. In later years, these deficiencies may manifest themselves in lower levels of academic success and, ultimately, in lower incomes when they reach adulthood.

Ethnic Minority Status

There are strong correlations between socioeconomic status and membership in indigenous or other ethnic minorities, particularly those that have historically suffered from discrimination. Membership of some ethnic minority groups may correlate to higher levels of unemployment or substance abuse, as well as poorer mental and physical health.

Violence

Although interpersonal violence can occur at any socioeconomic level, people from lower socioeconomic backgrounds tend to have greater exposure to violence, especially in their formative years. Exposure to violence can negatively affect a person's academic and employment outcomes, and domestic violence is also a major cause of homelessness.

Example of Social Economics

An individual’s socioeconomic status can significantly impact their educational attainment and financial security. An individual from an affluent social class will likely have a greater opportunity to achieve higher education and may be expected to pursue such a goal, while those from low-income families generally do not have the same opportunities available to them.

For example, low-income families may not be able to pay for their children's participation in team sports, music lessons, or private tutoring, which can propel them toward achieving a prosperous future (as well as provide them with growing confidence to take on more challenges). Also, these children may attend overcrowded schools where education is underfunded or understaffed.

Completing higher education is more likely to increase their income potential, as well as provide opportunities to interact with people of similar or more advanced social standing and build beneficial social networks.

In contrast, higher education may not be attainable for an individual existing at or below the poverty level. Many studies have revealed that young children from families existing at or below the poverty level develop academic skills slower than children from affluent social classes. A lower socioeconomic status is also related to poor cognitive development, language, memory, socioemotional processing, and consequently poor income and health in adulthood.

What's more, school systems in communities that are primarily populated by those at or below the poverty level are often underresourced, which negatively impacts students’ academic progress and outcomes. Poor academic skills and progress, combined with high dropout rates, can impact children’s academic achievement in the long term.

Social Economics and Monetary/Fiscal Policy

The government has a substantial impact on social economics through its monetary and fiscal policies. Fiscal and monetary policies directly impact social welfare by influencing employment levels, income distribution, and access to essential services. The policies set forth by governments naturally aim to improve social welfare, thereby being tied to social economics.

Monetary and fiscal policies can play a significant role in tackling inequality by redistributing resources as well. For instance, progressive taxation and targeted social spending are fiscal measures aimed at reducing income inequality. Another example is monetary policies that prioritize full employment which can narrow income inequality.

Though these policies may not be specifically targeted at certain demographics, there may be indirect benefits had by different social economic classes. Consider how larger families are economically impacted differently due to refundable tax credits. In this case, government policy is striving to promote certain economic activity by specific demographics.

Social Economics and Gender Wage Gap

The gender pay gap is closely related to social economics. The gender pay gap reflects underlying structural inequalities in the labor market which perpetuates unequal access to opportunities and resources.

Social economics can relate to how gender norms and stereotypes influence labor markets. For example, social economics relates to hiring practices, promotion opportunities, and wage setting. Women may be pegged for specific roles as opposed to different roles historically occupied by men. Certain bias may also influence their performance evaluation.

Gender disparities in earnings contribute to broader income inequality within society, thus perpetuating economic cycles and trends. This is further driven when considering other demographics as well. Research by the Pew Research Center revealed Black and Hispanic women earned 70% or 65% as much as White men, respectively. Therefore, there is a cyclical process where individuals have economic tendencies that perpetuate future economic tendencies.

The Bottom Line

Social economics is a branch of economics that examines at the relationship between social factors and economics. Frequently, social economists study the economic choices of different socioeconomic groups. These can be defined by a variety of characteristics, including by social or economic standing, level of education, current profession, and ethnic background or heritage. Such factors can significantly impact one's educational attainment and financial security. As a field of study, social economics looks at the interplay between social processes and economic activity, and can reveal broader inequalities in society.