Using the sources provided only in APA Style 550 words answer the following question: What approaches to the study of poverty does economic sociology offer? Mor

Economic

Sociology

Fabio Rojas, Indiana University

Economic Sociology (Fall 2021)

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Economic Sociology

F A B I O R O J A S , I N D I A N A U N I V E R S I T Y

THE SOCIOLOGICAL APPROACH TO THE ECONOMY

WORK AND PAY IN THE MODERN ECONOMY

Human capital and income gaps

Discrimination and income gaps

Social closure

Native Americans and Latinx people in the American economy

CORPORATIONS, MONEY, AND OTHER ECONOMIC

INSTITUTIONS

Corporations as institutions

Bureaucracies

Money

THE 1%, THE 50%, AND THE 99%

MARKETS: THE BIG PICTURE

REVIEW AND CONCLUSION

Economic Sociology (Fall 2021)

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THE SOCIOLOGICAL APPROACH TO THE ECONOMY

 How do sociologists look at economies?

 What is workplace discrimination? What does it mean for a job to be segregated by

gender or race?

 How is the economy “inside” society?

In 2009, Heidi Wilson, a bank services manager for Citigroup, sued her employer for

gender discrimination. When she was promoted to be the manager of her service center, she

was paid about $75,000. The man who held the position before her was paid $129,000. She

later asked her company for a raise and didn’t get it. She then asked the company to

conduct a study of pay levels inside the company. Soon after, she was fired. Wilson turned to

the courts. After suing Citicorp, she received a settlement of $340,000.1

Wilson’s case raises an important question about work: Why do some people get paid

more than others? A casual glance at income statistics shows consistent differences in pay

between social groups. According to numerous studies, spanning decades, women make less

money than men – depending on the study, about 15% less. This is the gender wage (or pay)

gap.2

Many factors explain why women make less money than men. Sometimes, employers

simply like certain workers more than others and reward them more highly. This is discrimination

in pay, and it happened in Wilson’s case. Men and women are also over- or under-

represented in different occupations. For example, women are overrepresented in nursing but

underrepresented among doctors. These are important differences because some jobs earn

more income and are seen as more prestigious or valuable than others. If women are less likely

to be in high-income jobs, like medicine, they will, on average, make less money than men.

Thus, the gendered segregation of work—the concentration of men and women in different

jobs—is a factor that partially explains the pay gap.3

The question of why men and women are paid differently is a great way to start thinking

about the economy sociologically. People are not interchangeable cogs in an economic

system. We bring our backgrounds and personal identities to work. When a boss is about to

hire someone, they are not only looking for skills; they’re also thinking about this person as a

potential friend, colleague, or ally at work. Some employers may not care about the gender

or race of job applicants, while others may care a great deal. An employer may ask, “Does

this person have the skills needed for the job?” But they also have emotions and gut reactions

related to social categories. The owners of a Silicon Valley company may feel that women

shouldn’t lead high-tech companies. Or maybe men avoid a job because it isn’t “manly

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enough.” Even though nursing is a field open to everyone, many men feel that they wouldn’t

fit into a job held mainly by women. When a job is perceived to be appropriate for either men

or women, but not both, the job is

gender typed.4 This is an example

of how gender “frames”

interactions. When people work

together, they often use gender to

guide their actions—thinking that

only women, for example, are

supposed to do certain jobs, like

nursing or teaching kindergarten.

Sociologists such as Cecilia

Ridgeway argue that this type of

framing happens in almost all

human interactions and

contributes to inequality at work

and in other settings.5

Understanding how “social things” are wrapped up in what we buy, who we hire,

and how we run businesses is the core goal of economic sociology.6 In the rest of this chapter,

we’ll think about issues that motivate economic sociology. First, we’ll discuss workplace

inequality and why some people get paid more or are promoted more often than others. Do

some people get paid less because they are less productive or because employers and

clients dislike them? Second, we’ll discuss economic institutions,7 the rules and systems we use

to organize our economic lives. I’ll talk about two economic institutions: money and the

corporation.

Third, we’ll discuss two big-picture approaches to the economy. What does it all mean?

Is our system of private profit a good one? Sociologists call this kind of analysis political

economy.8 We’ll start with the more positive view of the classical economists, who saw the

economy as a vast and sprawling social order that coordinates buyers and sellers. I will also

talk about the critical approach, which stems from writers such as Karl Marx; from this view,

markets are inherently unfair and exploitative, generating inequality, corruption, and social

instability. This leads to the final section, about high and low points in the American economy.

What do sociologists and other researchers know about poverty and what do we know about

the very wealthy and those who are poor?

How do people factor gender into the decision to hire someone for a

job? (Source)

Economic Sociology (Fall 2021)

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REVIEW SHEET: THE SOCIOLOGICAL APPROACH TO THE

ECONOMY

CLICK THE LINK FOR:

LEARNING OBJECTIVES KEY QUESTIONS

AUDIO KEY POINTS

PRACTICE QUIZ KEY PEOPLE

VOCABULARY CROSSWORD PUZZLES KEY TERMS

WORK AND PAY IN THE MODERN ECONOMY

 How are barter economies and cash economies different?

 Why do we have a division of labor?

 What does human capital theory try to explain?

 What is the difference between statistical discrimination and taste-based

discrimination?

 What are some occupational groups that maintain high pay because they have been

able to exclude others from their type of work?

Take a moment and think about how you get your food. It’s almost certain that you

don’t live on a farm and grow all of it. You probably don’t till the soil, plant wheat, and then

harvest it. You likely don’t grind it and take a few hours to bake bread. Instead, like most

people, you go to the grocery store and use money to buy bread. And the people at the

grocery store then use the money to buy things they need.

This chain of cash and work defines the modern economy. Very few people make

everything they need. Instead, we work at jobs and try to get people to pay us for what we

Economic Sociology (Fall 2021)

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do. We use our income to buy a wide assortment of goods and services: food, smartphones,

Netflix subscriptions, and trips to the dentist. Adam Smith, an 18th-century economist, called

this the division of labor.9 As societies develop and grow, people can no longer do every type

of labor. They divide the labor up, specialize, and become more efficient. The division of labor

is the basis of the economy that we experience every day.

Sociologists have long had a special interest in the division of labor. When economists

first thought about the division of labor, they were mainly interested in efficiency: Was it better

for people to specialize in a specific job? Did specialization lead to wealth? Sociologists had

different questions: Who gets the best jobs in the division of labor? Do people get equally

rewarded if they do the same job? These differences in income and jobs are called economic

inequality.10

Inequality is a central concern of sociology. Societies tend to be unequal; there is no

society where everyone makes exactly the same amount of money or has exactly the same

amount of status. Even in non-industrialized societies, like tribes living in remote parts of the

Amazon or central Africa, some people are more popular than others and occupy the best

land. Inequality certainly characterizes the United States. Some people live below the poverty

line (the U.S. Census measure of the income needed to buy a minimally-sufficient amount of

food and shelter) while others have incredible amounts of wealth.11

Human capital and income gaps

How do we explain how much money people make? Human capital theory suggests

that skills lead to income. If you have a skill that is highly desired, you will make more money

than people with less-desired skills.12 This might explain why doctors make more money than

poets: While poetry has its own value, few people desire poetry so badly that they will pay lots

of money for poems. But most of us are willing to pay large sums for medical services that

relieve our pain or extend our lives.

Human capital (your skills and knowledge that allow you to be productive at work and

produce economic value) is an important tool for thinking about income inequality. For

example, ethnic groups vary in their average yearly incomes. African Americans and Latinos

make less money than the average White person in the U.S. According to the 2017 Current

Population Survey, the median income for an African American family was $41,000; for Latinos,

it was $50,000. In contrast, the median White household earned about $68,000.13 This is a very

large difference and it matters a great deal. How do we explain this gap in income between

ethnic groups?

Human capital theory points to education. People with college educations generally

make much more money than those without college degrees. College graduates make

almost double what people with only high school degrees earn. The extra money that college

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graduates make is called the college premium. This has indicated to sociologists that

education might be one explanation for differences in income.14

The data on

education, race, and

ethnicity is consistent with

this view. About 36% of

Whites have a college

degree, while only 23% of

Blacks do.15 This is an

important gap because

many of the best jobs

require advanced

educations; some, such as

medicine and the law,

require multiple college and

graduate degrees. Other

jobs that require a college

degree may not pay as

much, but they offer high levels of job security. Teaching is one example; public school

teachers don’t make as much as doctors but they often have tenure, which means their

contract is automatically renewed as long as they do a satisfactory job. Not surprisingly, most

states require that teachers have college degrees.

Not only are there differences in how much people are willing to pay for skills (e.g.,

people want doctors more than poets), but some groups have systematically different access

to skills, which impacts their long-term earnings. Let’s think about the case of doctors. To

become a medical doctor, you need to accomplish the following: First, you need to complete

high school and enroll in college. Second, you have to complete a four-year college degree

with a high GPA. Then you must get a high score on a standardized test (the MCAT) and earn

admission to a medical school. Finally, you have to find the money to pay for medical school.

At current rates, you need about $200,000 for a private school or $100,000 for a public one.

Most medical students take out huge loans. As you can see, becoming a doctor is a difficult

and expensive process. If some racial or ethnic groups start with low incomes or have little

access to good high schools, it will be harder for them to begin the process of becoming a

doctor. We would expect those groups to have lower levels of educational achievement,

which would later lead to lower incomes.

According to human capital theory, manual work, like house painting, doesn’t

pay as much as some other jobs because the skill is very common. (Source)

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Doctors earn a lot of money because their skills are rare, as suggested by human capital theory.

But there are also laws that restrict the total number of medical school graduates. (Source)

Discrimination and income gaps

Human capital theory isn’t the only explanation for why some groups make less money

than others. A second theory is that employers and customers discriminate. Remember the

case of Heidi Wilson, who sued Citicorp. She argued that women were not paid the same

money for the same work. This is an example of the discrimination theory of income

differences. Women and men are capable of performing the same management tasks at

Citicorp, but perhaps the bank’s leaders simply like men more than women and so they pay

men more. When an employer or customer pays more to some groups than others for

providing the same service or good, they’re engaging in taste-based discrimination. In other

words, if a boss pays a White worker more than a Black worker when they’re equally

productive, it reflects the boss’s subjective “taste,” or preference, for White employees.

In an interesting experiment, Devah Pager and her colleagues had matched pairs of

men give (fake) resumes to employers to see how much employers cared if applicants have a

criminal record. This was another audit study, which you’ve read about in previous chapters.

Some of the men participating in the study were White and some were Black. The resumes

they presented to potential employers were matched in terms of work experience and skills for

the jobs; however, some mentioned a minor criminal record (a conviction for a non-violent

Economic Sociology (Fall 2021)

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drug offense) while others didn’t. And not surprisingly, they found differences: employers were

less likely to call those with a criminal record and invite them for a job interview. But there was

an even larger gap based on race; in fact, a higher percentage of Whites with a criminal

record (17%) got a call for a follow-up interview than Black applicants without a criminal

record (14%)!16 This experiment shows that taste-based discrimination is real and that it

emerges even at the point of screening job applicants. If such biases in hiring and pay occur

at many stages of hiring and evaluating employees, it’s not difficult to imagine how race- and

gender-based differences in income would emerge.

However, a difference in income doesn’t always mean that employers or customers

dislike a group of people. It may indicate a genuine difference in skills or job-related abilities

that exists, on average, between groups. Statistical discrimination occurs when an employer

pays people from a certain group less because members of that group in general do not

perform as well as others; this is a form of discrimination because bosses are distinguishing

between workers based on group membership rather than their individual skills.17 Consider an

example from When Work Disappears, by William Julius Wilson.18 Wilson asked a common

question: Why is it hard for people from poor neighborhoods to find jobs? He answered this

question with an in-depth study of a poor Chicago neighborhood. He and his team of

researchers visited homes, interviewed people, and talked to employers around the city.

The story is complicated. Wilson found some evidence for human capital theory. High

schools in poor neighborhoods don’t prepare their students well for jobs. The schools are often

in such a poor state that students leave without a solid grasp of written English, which is

crucially important in an economy that depends on computers and handling information. In a

discussion with employers, Wilson asked why they didn’t bother to call people about a job

even if they had a high school degree, which indicates they might be prepared for an office

job. A number of employers suggested that people from these low-income areas probably

didn’t have the right personal skills—such as talking to customers or following directions at

work. Poor people from these areas of Chicago weren’t getting jobs because employers

thought it took too much effort to figure out who could work well in an office. They assumed

that the average person from poor neighborhoods wouldn’t fit. This is an example of statistical

discrimination; employers made decisions based on broad judgments about the abilities of

groups, rather than by evaluating individual job candidates.

Social closure

A third explanation of income differences is social closure. Often, one group will

actively try to exclude another in an attempt to defend its occupational “turf.” Consider

doctors. It’s certainly the case that doctors do well because their services are needed. But

part of their income derives from the fact that there are very few medical schools, and states

require doctors to obtain a degree from one. In fact, it’s illegal for non-doctors to perform

Economic Sociology (Fall 2021)

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many medical procedures, even those that require little medical knowledge.19 This makes

doctors relatively scarce.

To appreciate this point, take an example from my own life. Recently, my daughter and

I were at a mall and, like many young children, she started chewing on a small object she

found. She quickly wedged a small metal cap into her teeth. I couldn’t pull it out with my

fingers, nor could my wife. I eventually gave up; I needed someone who had a little skill in

taking care of teeth. I brought my daughter to an ER and told the nurse that my daughter had

a metal cap wedged in her mouth. A pediatrician took out a small tool and popped out the

cap in less than a second! The doctor was kind. She was used to children cramming all kinds of

odd things in their mouths, and she made me feel better.

What didn’t make me feel better was the doctor’s bill. For a procedure that took a few

seconds, I was charged over $600! What could account for such a high invoice? Human

capital theory suggests that the pediatrician had a valuable, and rare, skill that I really

needed. But the human capital answer is incomplete. Yes, the doctor had a valuable skill, but

couldn’t other people offer the skill of pulling metal caps out of children’s mouths at a lower

price? Many dentists could do it, many nurses could as well; many other health care

professionals, such as paramedics, could also complete such a simple procedure. But while

they probably could do it, they’re prohibited by law from doing so. In general, the only people

who can offer medical services, however minor, are doctors. Anyone who advertises medical

services without a medical degree will end up in jail. Thus, we shouldn’t be surprised when

even very basic medical services are expensive.

Doctors are only one example of social closure. For example, in the 1800s, many

southern states passed Black Codes, laws that banned newly freed slaves from entering

desirable trades.20 The goal was clear: state governments wanted the most desirable trades to

be reserved for White men. Today, we see a similar dynamic regarding migration: many

people want to exclude low-education workers from other countries in order to boost the

incomes of native-born workers.

Native Americans and Latinx people in the American economy

This chapter has focused on a number of processes that affect income and jobs such

as job skills, employer discrimination, and participation in labor markets. Here, we turn to a

discussion of how two different groups, Native Americans and Latinx people, fit into the

American economy. In some ways, they share much in common. The average income and

college graduation rate within each group are significantly below the national average. At

the same time, each has a unique history, and different institutions and characteristics

emerged that shape the way Native Americans and Latinx people earn income.

The story of Native Americans is essentially a story of conquest, forced removal, and

expropriation since the founding of the United States. Even though numerous treaties were

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signed to protect Native sovereignty and property rights, the treaties were routinely violated. In

many cases, Native Americans were forced to live on lands set aside for them called

reservations. By the 1900s, the situation had stabilized and the modern reservation system had

emerged. The 1934 Indian Reorganization Act passed by Congress established the basic legal

framework for reservations and allowed tribal leaders to exercise a significant level of control

over the economy of Native American communities.

Native American control over the economic institutions of reservations had far-reaching

implications that are still felt in the 21st Century. Specifically, Native American leaders had the

power to approve businesses that were limited, or even prohibited, outside of reservations. The

most notable example is gambling. Currently, about 200 Native American tribal groups

operate casinos, some in states where this type of gambling is otherwise illegal. In other cases,

reservations establish regulations that allow selected businesses to thrive, such as tourism and

specialized manufacturing. Thus, a key issue in understanding economic outcomes among

Native Americans is whether they find jobs in one of the industries that have emerged on

reservations or whether they seek employment in the rest of the American economy.

Like Native Americans, Latinx people are remarkably diverse and there is no single

“Latinx” experience that would explain all economic or employment outcomes. Still, a few key

factors often affect their outcomes. First, many people who identify as Latinx are immigrants or

have immigrant parents, and the context of their arrival in the U.S. is important. For example, a

large portion of migrants from Mexico find work in agriculture, which is generally low-paid. In

contrast, Cubans who migrated to Florida after the Cuban Communist Revolution of 1959

were often professionals such as teachers, doctors, and accountants. Not surprisingly, the

economic outcomes and options of Mexican agricultural laborers and Cuban professionals will

be vastly different.

Second, language strongly influences the ability of immigrants to earn income. The

ability to speak English greatly improves how much people earn. This draws attention to a very

important feature of work: getting a job is not merely about performing a specific task, it’s

about communicating with customers and employers and knowing how to fit in. Third,

migration status is also highly associated with income. American employment law makes it

difficult for people without proper documentation to find legal work, which means that their

wages are lower than might be expected otherwise. This is one reason why critics of the U.S.

immigration system often ask that the law be reformed to make it easier for people to legally

migrate here so their wages won’t be suppressed.

Economic Sociology (Fall 2021)

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REVIEW SHEET: WORK AND PAY IN THE MODERN ECONOMY

CLICK THE LINK FOR:

LEARNING OBJECTIVES KEY QUESTIONS

AUDIO KEY POINTS

PRACTICE QUIZ KEY PEOPLE

VOCABULARY CROSSWORD PUZZLES KEY TERMS

CORPORATIONS, MONEY, AND OTHER ECONOMIC

INSTITUTIONS

 What are the defining features of corporations? What types of laws govern corporations

in the U.S.?

 What is an economic institution? Are corporations formal or informal institutions?

 How do people use money to convey meaning? How might money change the way

people think about relationships?

Pacific Railway. Sears. General Motors. These titans of industry left their mark on

American history. At their peak, each of these corporations employed thousands of people

and built massive structures. The railroad companies laid thousands and thousands of miles of

railroad track, many of which are still used 150 years later. Drive through America and you still

see hundreds of Sears department stores. Even in decline, Sears managed to sell nearly $17

billion worth of goods and services in 2017.21 While people are shifting their purchases to online

retailers, the department store giant still brings in vast amounts of income. And General Motors

is doing quite well. It has weathered world wars and many economic recessions since its

founding in 1908. In 2017, General Motors employed 180,000 people and sold nearly 10 million

cars around the world.22

Economic Sociology (Fall 2021)

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Corporations—groups of people organized together by the owners to generate profit—

are a method of organizing the labor of millions of people. Corporations are so big that their

actions cause ripples across the economy. If General Motors went bankrupt, thousands of

auto-workers would be out of jobs. GM’s bankruptcy would also cause hardships for the

suppliers, dealers, and mechanics whose jobs depend on the sale and maintenance of

millions of cars. Not surprisingly, when the American auto industry has faced economic

problems, the U.S. government has often stepped in to help. In a very real way, the

corporation is a way of life in America.

Corporations as institutions

Corporations are an example of an economic institution, a set of formal and informal

practices meant to organize an activity. Corporations are formal institutions in the sense that

laws and other written policies govern what corporations may or may not do. For example, a

corporation must have a board of directors that appoints and monitors the company’s

leadership. If a corporation wants to raise money by selling stock, it must publicly report its

finances and tell stock owners what it has done each quarter.

Corporations are also

informal institutions governed

by social norms, unwritten rules

about what people expect.

Many people expect

corporations to “give back”

and help communities through

charitable work. This is one

reason you see corporate

sponsors behind a wide range

of activities. Corporations give

to the Girl Scouts, colleges and

universities, and hospitals. They

give money for Little League

baseball teams and cancer research. Why? Some business leaders truly support those causes.

Business leaders, like everyone else, would like to see medical researchers find a cure for

cancer. Sometimes the reasons are self-interested; how many of us wouldn’t feel pride and

high self-esteem if a university built a fancy library and named it after us? There are also social

expectations. A corporation that fails to give to charities might be viewed as heartless or

uncaring; just like other people, executives want to be seen as “normal” people who care

about their communities.

The skylines of m

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