Wealth. Yuval Elmelech
are in a dozen strategic positions to make it yield further wealth” (Mills 1956: 115).
The CA framework posits that, once initial economic advantages are gained, they become self-perpetuating and tend to augment with time, causing a widening of the gap between the wealthy and those with fewer economic resources. As Rigney (2010: 2) notes, “[n]o theory of stratification is complete without attention to such processes.”
The emphasis on cumulative advantages presents only one dimension of stratification processes, however, while generally overlooking the other end of the wealth distribution and the consequences of cumulative disadvantages over the life course. More specifically, wealth holding is often affected by experiences that are detrimental to the process of wealth attainment, such as job loss, home eviction, incarceration, disability, or divorce. These life-course events have a cumulative component that results in the gradual depletion of wealth over time. Such a component is best described as cumulative disadvantage (CD) (see Blank 2005; Pager and Shepherd 2008). An inevitable outcome of wealth accumulation based on CA/D processes is the increasing inequality within the population, an outcome known as cumulative inequality (Ferraro and Shippee 2009).
A union of the (revised) LCH with the CA/D framework yields a particularly relevant model for wealth analysis. Indeed, longitudinal studies of life-course changes carried out with various social, health, and economic measures among members of the same age cohort have shown cumulative processes of amassing advantages and disadvantages that result in increasing disparities as the members of the cohort grow older (Dannefer 2003). Among the older population, the term “two worlds of aging” was coined to describe the correlation between aging and increasing wealth inequality due to CA/D processes (Crystal 2016: 43). Although CA/D processes have been a major focus in both social stratification scholarship (Merton 1995; Mills 1956; DiPrete and Eirich 2006) and gerontology (Dannefer 2003; Crystal 2016), these two lines of study have rarely intersected, perhaps because social mobility and stratification research has traditionally focused on the young population of working-age individuals (25–65-year-olds).
Shifting the locus of analysis from individual labor market remunerations to household wealth holdings calls for the merging of these two parallel lines of research. Not only is wealth mobility unconstrained by age, but the “biography” of wealth accumulation stretches across multiple generations, from the provision of initial endowments to future generations to ongoing opportunities for accumulating and dispersing wealth over the life course.
Illustrating the wealth CA/D effect: The compound interest analogy
The CA/D framework has been applied to various areas of study, ranging from scientific productivity (Merton 1995), athletic ranking/prominence (Gladwell 2008), and health disparities (Dannefer 2003) to racial disparities in mortgage lending (Rugh et al. 2015). The scenarios used to illustrate systematic CA/D processes (Figure 2.1) are often taken from the financial world, with the accumulation of compound interest on an investment an especially common analogy for explaining the growing gaps between the “haves” and the “have-nots.” Figure 2.1 presents three scenarios that demonstrate CA/D processes (see Rigney 2010; Diprete and Eirich 2006).
The first scenario describes two households (A and B) that invest different amounts of wealth, respectively $2,000 and $1,000, and are offered a 5% interest rate that is compounded annually. While the numerical difference between the two at the beginning of the year is $1,000, the gap will increase to $1,050 a year later, as household A adds $100 to its initial investment, while household B adds only $50. Over the next fifteen years, the numerical gap will continue to grow and, by the end of the period, the gap will have increased to $2,079. However, as long as the interest rate remains at 5%, the ratio of the difference between the two investments will remain intact at 1:2. This analogy reflects a scenario in which two households, having different levels of wealth as a starting point (endowments), but equal opportunities for education and employment, are faced with proportional returns on education and equal access to housing, financial assets, and credit.
Figure 2.1. CA/D processes Created by the author
If, instead, the interest rate correlates with the size of the principal—for instance, 5% on $1,000 but 10% on $2,000 (Household C)—then both the magnitude of the gap and the ratio between the two investments will grow over time (DiPrete and Eirich 2006: 272–273). This form of CA represents a case in which early advantages (the price appreciation of an expensive home in a desirable neighborhood partly paid for by financial gifts from parents) tend to grow at greater rates than smaller advantages (a home in a less sought-after location purchased with no parental assistance), resulting in growing wealth inequalities over time in both absolute and relative terms.
A third scenario (Household D), a variant of the second scenario, portrays a gradual accumulation of “disadvantages” associated with credit and loans that need to be paid back with interest: “Compound interest turns wealth into more wealth and debt into more debt” (Boshara 2004: 99). As demonstrated in the case of Household D, which took a loan of $2,000 with an interest rate of 6%, this general rule produces situations of extreme financial loss and increasing cumulative inequality over time, particularly between Households D and C. The financial crisis of 2007–2008 is a case in point. It affected millions of American households, leading to cumulative disadvantages, a rise in home foreclosures, and a rise in debt that often resulted in negative net worth as well as in credit denial, a lower standard of living, and detrimental health outcomes (Ferraro and Shippee 2009).
In this regard, two points are worth noting. First, in light of the fact that net worth, unlike other measures of socioeconomic attainment such as education and earnings, is unbounded and has no “ceiling” or “floor” constraints, CA/D processes can generate an accumulation of great fortune or a decline into negative territory, producing extreme material vulnerability. Second, in addition to economic shocks, detrimental events earlier in life—such as disability, divorce, or incarceration—could have a long-term bearing on wealth attainment later in life and across generations. For example, a recent study on the effect of incarceration on the ownership of assets (bank accounts, vehicles, and homes) found that CD processes transcend an individual lifespan, leading to what the authors termed “cycles of cumulative disadvantage”:
Incarceration reduces assets among already disadvantaged young men and their families, and this asset poverty, in turn, further disadvantages the children of formerly incarcerated men. (Turney and Schneider 2016: 2097)
This is not to say that, at the micro level, advantages and disadvantages experienced by the individual are always deterministic in the way predicted by the CAD model, or that they inevitably lead to rising inequality, as depicted in Figure 2.1. As will be explored later in the book, some events in people’s lives may perpetuate CA/D processes, while others may mitigate them. The imprint that life-course events leave on wealth attainment largely depends on the social context within which these events are embedded.
Meso-level processes: Social group membership and interaction effects
Figure 2.1 portrays the essence of life-course CA/D processes but largely ignores the contexts in which upward and downward wealth mobility occurs. As systematic determinants of lifelong mobility and inequality identified through both economic and non-pecuniary measures (Dannefer 2003), CA/D processes are embedded in, and influenced by the interaction of, social, economic, and demographic forces that are external to the individual or household.
One example of such a context that fits with the life-cycle model of wealth trajectories is the age cohort effect—that is, the circumstances and consequences of being born within a particular time span. Being a member of a specific age cohort has implications for one’s life-cycle wealth accumulation. First, the size of the cohort demarcates one’s opportunities for mobility. The sheer size of the baby-boomer generation, for example, has created among its members a greater competition for education,