Wealth: its use, level, inheritance and change—in relation to human capital

This paper investigates a number of conjectures about the relative importance of the two components of social class, wealth and human capital, through the life course. It sets out grounds for the expectation that human capital will be of more importance to social position during the earlier part of adult life, while wealth should be increasingly important during the later. The empirical part of the discussion develops a predominantly indirect estimation of wealth (by multiplying up from observed income from investments and pension funds from the British Household Panel Study), also using BHPS direct measures of housing wealth. The distribution of these two measures over the life-course (estimated cross-sectionally) conforms to the expected life-course pattern. Regression models are used to show the importance of human capital growth for the accumulation of capital through the life-course. This paper is part of a larger project, “Social Position and Life Chances” (SPLC), which aims to formulate and estimate new measures of social class appropriate for understanding life chances in modern Britain. An initial outline of the project is set out in ISER Working Paper 2001—21; the human capital measure used here is discussed in ISER Working Paper 2002—2. Regression modelling approaches to the intergenerational mobility of human capital are discussed in ISER Working Paper 2002—17, and ISER Working Paper 2002—18 develops a Gini-type index of intergenerational mobility. The SPLC project is part of the Research Programme of the ESRC Research Centre on Micro-social Change. NON-TECHNICAL SUMMARY At the core of social class is command over two distinct classes of resources: wealth (investments and the like, pensions and associated entitlements, house ownership), and human capital (economically salient skills and qualifications). This paper provides a range of discussions of the degree of independence of wealth from human capital. It sets out a new measure of wealth based on the BHPS (to be compared with the human capital measure describes in Gershuny 2002a). And it investigates the changing relationship between these two measures through the life course. The theoretical discussions about relationship between the two sorts of resource include: • An initial and general background consideration of the macro issue of the “knowledge society”. They advance the conjecture of a “weak” historical process in which knowledge tends (though with exceptions) to become relatively more important than capital as a source of social power with economic development. • The conjecture that wealth and human capital have different implications for consumption, because of their different time-requirements for income generation) • The transformation of each into the other: wealth to human capital, mostly (though not entirely) through the operation of the educational system); human capital to wealth by saving from income (those with most increase in human capital saving most hence increasing their wealth fastest). • These processes in turn imply the staging of the accumulation process at a micro level: There are intergenerational differences; the use of educational system as capital transfer mechanism implies the likelihood of differences in the pattern of embodied capitals (economically salient capital vs cultural capital) between successive generations (“Buddenbrooks dynamics”) • More important, are the implications for intra-generational change in relative importance of human capital and wealth. Human capital is formed early in the adult life, grows to a maximum in early-middle age, declines thereafter; by contrast, wealth is gradually accumulated through the life-course, accelerating through middle-age with inheritance of wealth from parents, and at the onset of old age through the maturing of pensions and similar investments. The empirical estimation of wealth here is mainly an indirect one through the measured streams of income in the BHPS, multiplying-up from investment and similar earnings on an a priori basis to estimate the capital sum (and also use the BHPS annual measures of housing wealth directly). Two particular empirical findings emerge: • Financial wealth and human capital are indeed differentially distributed through the life course, as the theoretical considerations would lead us to expect. • Regression modelling identifies human capital levels, and particularly change in levels of human capital as major contributors to change in wealth through the life course.