2017). Consequently, as the structure and function of the family become more diverse in industrialized societies with rising rates of cohabitation, childlessness, divorce, and single-living, both individual and family attributes should be considered in wealth analysis.
The LCH has also inspired prolific research into, and extensive debates about, the actual contribution of savings made out of income to wealth accumulation processes; and, particularly, it has stimulated debates about the muted role of intergenerational transfers in the model. Estimates of the share of household total net worth that can be traced back to intergenerational transfers—passed down from older to younger generations—range from less than a quarter to more than three quarters. Gale and Scholz’s (1994) estimates of the US data concluded that most of the accumulated wealth could be attributed to intergenerational transfers rather than to life-cycle savings. An analysis of more recent data from the Survey of Consumer Finances (SCF) (1989–2007) suggests that almost 40% of the wealth accumulated by older American households has its origins in intergenerational transfers (Wolff and Gittleman 2014). Wolff (2017: 261), however, notes that, when the sample is restricted to the bottom 95% of the population, the explanatory power of the life-cycle model, with its emphasis on savings out of income, is substantial.
Beyond their contribution to wealth accumulation, intergenerational transfers are also qualitatively different from market transactions. While inter vivos transfers need not be purely altruistic, they are founded on informal bonds and intimate kinship ties, which have an emotional underpinning and are guided by normative obligations to family members and to the preservation of their well-being (Michalski 2003; Kohli 2004). Often there is no conflict of interest or competition between the parties, as both gain from the exchange; one party willingly provides valued social, cultural, or economic resources, which the other party wishes to receive (Michalski 2003). While the flow of economic resources is unidirectional, it still constitutes a form of voluntary social exchange: “Parents who send their children to college know that sustained one-way flows can and do occur in social exchange relations” (Willer 1999: 28).
A “chain” of markets and domains
Another deviation from the more established research on social mobility, with its focus on labor market attainment, is the multiplicity of domains and markets within which wealth accumulates through the exchange of goods and services. Savings made out of labor income capture only one, albeit important, segment in the chain that constitutes wealth mobility over the life course. In addition to earnings, households’ efforts to secure loans in order to purchase a car or start a business, to gain access to retirement plans and have control over investment decisions, and to find safe and affordable housing are but a few examples of household financial activities and of the numerous market transactions that influence asset ownership, portfolios, and total net worth.
In contrast to transactions among family members, market transactions are based on economic incentives and, as such, involve competition and opposing interests between the two transacting parties: “The exchange of money for a commodity is an economic exchange. When I buy a house, the money paid is a loss, whereas receiving the deed is a gain. For the seller the money is the gain and the house is the loss” (Willer 1999: 28). Because wealth holdings are partly shaped by the exclusionary practices that certain households are likely to encounter in multiple domains (education, welfare, etc.) and in multiple markets (housing, labor, financial, etc.), wealth inequality between the “haves” and “have nots” has the potential to grow over the life cycle. Differential opportunities and constraints that households experience in various markets—such as steering in the housing market, preferential treatment or credit denial from financial institutions, access to or exclusion from employer-sponsored retirement plans, unusually high interest rates on car or mortgage loans—are key determinants of their ability to accumulate, invest, and transfer economic resources.
A revised two-stage model of wealth accumulation
A revised life-course model of wealth accumulation—one that addresses the changing patterns of family transfers and the role of markets in economically advanced societies—provides a helpful explanation for wealth mobility in aging societies but does not explicitly address the question of inequality. However, wealth’s cumulative nature means that it is not difficult to envision how systematic disparities in access to family transfers (endowments) or to favorable market transactions would result in growing inequality.
The tortoise and the hare: A wealth tale
Aesop’s fable “The Tortoise and the Hare” is a tale about a contest between unequal partners. A hare brags about his speed and challenges a tortoise to a race. Noticing that he is well ahead of the tortoise halfway through the race, the confident hare decides to take a nap at the side of the road. When he wakes up, the hare continues the race and arrives at the finish line; but the tortoise, who has continued to plod along all the while, is already waiting for him there. The tortoise is declared the winner (visit http://read.gov/aesop/025.html for a digital version).
The wealth version of the tale has a different ending. Not only does the hare start the race from an advanced position, ahead of the tortoise, but it is impossible for the tortoise to arrive at the finish line on its own. Furthermore, even when the wealthy hare stops to take a nap—or, as sociologist C. Wright Mills (1956: 111) said of the conditions governing wealth mobility among members of the elite, “even for a man in a coma”—he will continue to be ahead of the asset-poor tortoise on the wealth ladder.
The Big Jump and the accumulation of advantage
Studying what he terms the “power elite,” Mills (1956) describes a two-stage process of wealth accumulation in the hands of the elite: the “Big Jump” and the “Accumulation of Advantage.” The Big Jump, defined as “an opportunity to command a large sum of financial resources,” describes the starting point of the process. Since only a small percentage of households experience such a jump, inequality in economic resources by family of origin is where scholars of wealth stratification look for information on the formation of initial advantages. In addition to inequality at the point of initiation (endowments or lack thereof), the direction and gradient of mobility over the family life course are neither uniform nor universal. As noted earlier, the process of wealth accumulation involves distinct opportunities that people experience over the life course both in the private, familial sphere—intragenerational exchanges, such as assortative mating, income pooling, and economies of scale (Sweeney and Cancian 2004; Charles et al. 2013), and intergenerational wealth transfers that pass down from older to younger generations (Albertini et al. 2007)—and in the public sphere, in the form of rewards in various domains and markets, from education to earnings to profitable financial investments.
Importantly, as the following chapters will reveal, life-course trajectories in the domestic or family sphere and in the public sphere of domains and markets are strongly interdependent, and within each sphere trajectories are often path-dependent and have enduring consequences for wealth attainment. Scholars of stratification note that advantages early in life can lead to exponential growth in socioeconomic returns later in life; early disadvantages, on the other hand, often lead to additional handicaps and downward social mobility. The systematic pattern of these processes—a pattern captured by the “cumulative advantage/disadvantage” (CA/D) framework (Merton 1968, 1995; DiPrete and Eirich 2006)—results in rising inequality.
Cumulative advantage/disadvantage processes
Observing substantial inequality in the publication records of renowned scientists and their less credited colleagues, sociologist Robert Merton coined the term “the Matthew effect” to describe a systematic and self-amplifying process of cumulative advantage (CA):
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