Introducing the Founding Director

Sociologist Fabian Pfeffer investigates financial inequalities

Fabian Pfeffer uses a tower of dollar coins to illustrate wealth inequality in the USA. While a tenth of the US population does not own a single dollar or is even in debt, the one-dollar coins of the super-rich would pile up to the International Space Station and, at the top, even to the moon. "Wealth inequality in the US," explains sociologist Pfeffer, "has reached astronomical levels."

Professor Pfeffer has held the Chair of Social Inequality and Social Structures at LMU since last year. He researches and teaches on issues of social inequality and mobility, wealth, education and quantitative methods.

Pfeffer studied economics and sociology at the University of Cologne and completed his doctorate in sociology at the University of Wisconsin-Madison. "My PhD on the subject of social inequality was jointly supervised by two supervisors who approached the subject from different perspectives: On the one hand, with the aim of describing existing inequality as accurately as possible in quantitative terms, and on the other, a perspective that not only describes and criticizes existing conditions, but also scrutinizes new models of a fairer society." The combination of both perspectives to study the issue of inequality also inspired him during his more than ten years at the University of Michigan, where he was an Associate Professor and Founding Director of the Stone Center for Inequality Dynamics before moving to LMU.

Financial exploitation of minorities

Pfeffer investigates social inequality and its perpetuation over time and across generations. Current projects focus on wealth inequality and its consequences for the next generation. Pfeffer’s research addresses the question of why wealth inequality persists across generations. "There are systemic disadvantages in financial systems that stand in the way of certain population groups accumulating wealth and reinforce inequalities across generations."

One example are exploitative debt products, especially in the USA. "In the run-up to the 2008 financial crisis, financial institutions specifically targeted Black and Hispanic households with ‘subprime loans’" says Pfeffer. "As a result, these families had little chance of using their home ownership to accumulate wealth; on the contrary, they got into huge financial trouble."

Measured in dollar coins, the tower of the typical White US household would reach the top of the Empire State Building, according to Pfeffer - almost nine times as high as that of Black Americans. “And to make it into the top one percent of the US wealth distribution, you would have to amass a stack of dollar coins 22 kilometers high."

Germany and Sweden - as unequal as the USA

His research also includes international comparisons of wealth inequality in industrialized countries. "While income in the US is distributed much more unequally than in other industrialized countries, wealth inequality in Germany - and in Sweden too, incidentally - is surprisingly similar to that in the US." Corresponding wealth dynamics have been little studied to date. "One aim of the research at my chair at LMU is therefore to describe wealth dynamics and clarify their determinants and effects." In Sweden, for example, it has been shown that family wealth also has a major influence on children's educational success.

To answer questions on inequality and mobility, the expansion of the social science data infrastructure and the further development of quantitative methods is also a "major building block" in Pfeffer's career. For over ten years, he was Co-Investigator of the US Panel Study of Income Dynamics (PSID). “This study has been in existence since 1968 and is the predecessor of the German Socio-Economic Panel Study, SOEP.” Another major data project, which Pfeffer is leading, is the US Wealth and Mobility Study (WAM), which is based on access to the full population of tax records for all US residents.

In Germany, Pfeffer aims to help build similar infrastructures. “In Germany, access to such administrative data is highly regulated, which can also be seen as an advantage: Once established, access is also reliable." The Munich International Stone Center for Inequality Research (ISI) at LMU, which Pfeffer will establish as founding director over the next few years, is a new organization that will help with the development of new administrative data. In addition to data development, this center will strengthen the national and international networking of inequality researchers, promote young scientists and, last but not least, break new ground in science communication.

Astronomical coin tower

According to Pfeffer, a final important focus of the new center will be the analysis of so-called “real utopias”. He believes that sociologists should outline scenarios for a fairer society and, above all, analyze them empirically. “I hope that the strong international exchange we are aiming for at ISI will enable us to look at new institutions and political measures to counter inequality.”

Using the example of the astronomical dollar coin tower, he raises the following question: “Would it be possible to draw a line at the top above which no one can accumulate further wealth - because this gives individuals too much power and political influence and deprives the next generation of opportunities?” Of course, this may sound utopian, says Pfeffer. “But empirical research into inequality can also look into this and, for example, whether this money could be used to create a kind of 'prosperity floor for all' - a minimal tower of dollar or euro coins below which no one can fall. How high would this prosperity floor be, is it desirable, practicable and achievable? These future-oriented questions should also be part of inequality research."

Video of the dollar coin tower: https://www.youtube.com/watch?v=PAHYCiiXQlQ

More information on Prof. Pfeffer's work can be found at www.fabianpfeffer.com