Trusting Only Whom You Know, Knowing Only Whom You Trust: The Joint Impact of Social Capital and Trust on Individuals' Economic Performance and Well-Being in CEE Countries

This paper provides evidence that bridging and bonding social capital as well as social trust may interdependently affect individuals' earnings and subjective well-being. Based on cross-sectional World Values Survey 2000 data on individuals from Central and Eastern European countries (CEECs), we show that majority of citizens of these countries seem to fall in a "low trust trap" where deficits of bridging social capital and trust reinforce each other in lowering individuals' incomes and well-being. Apart from gradual modernization and economic growth, also increases in labor market participation can be perceived as a potential way out of this "trap", because employed people in CEECs tend to have statistically significantly more bridging social capital and more trust. We discuss our empirical results by providing an assessment of their robustness, and pointing out the high risk of endogeneity and omitted variables bias, often overlooked in earlier studies.