Social Capital and the Widening Earnings Gap: An Analysis of Caste-Based Disparities in Household Businesses

This paper addresses the question that mainstream economics fails to answer: how the order is upheld in this substantial part of the free-market economy that resides outside the state’s direct regulatory supervision, thereby leading to economic inequality between different caste groups. This paper examines the role of social capital in increasing earnings disparities in household businesses owned by Scheduled Caste and Other Caste groups. Using the data sets IHDS I (2004-05) and IHDS II (2011-12), the study attempts to interpret the social capital through the lens of ‘social embeddedness’, which emphasises the importance of social networks in acquiring economic resources. The finding indicates that between 2004-05 and 2011-12, the increase in earning inequality between-caste groups was more than two-fold for households with social capital compared to those without. The findings show that Other Caste households have significantly greater access to social capital, particularly bridging social capital, which contributes to their higher average incomes. The study highlights that social capital, such as connections with government officials, is crucial for business success and benefits dominant caste groups significantly.