Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right
AbstractWe investigate the importance of Veblen effects on work hours, namely the manner in which a desire to emulate the consumption standards of the rich influences individuals’ allocation of time between labor and leisure. Our model of the choice of work hours captures Veblen effects by taking account of the influence of the consumption of the well-to-do on the marginal utility of consumption by the less well-off. The main result is that work hours are increasing in the degree of income inequality. We use data on work hours of manufacturing employees in ten countries over the period 1963-1998, along with three different measures of income inequality to explore this hypothesis. Using both OLS and country-fixed-effects estimates, we find that greater inequality predicts longer work hours. Its effects are large, and estimates are robust across a variety of specifications. Additional evidence suggests that while greater inequality may induce longer hours for conventional incentive reasons, this mechanism does not account for our results. We show that in the presence of Veblen effects, a social welfare optimum cannot be implemented by a flat tax on consumption but may be accomplished by more complicated (progressive) consumption taxes or by subsidizing the leisure of the rich.
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Bibliographic InfoPaper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 409.
Date of creation: Nov 2003
Date of revision:
Interdependent utility; relative income; emulation; Veblen effects; work hours;
Other versions of this item:
- Samuel Bowles & Yongjin Park, 2005. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," Economic Journal, Royal Economic Society, vol. 115(507), pages F397-F412, November.
- Samuel Bowles & Yongjin Park, 2004. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," UMASS Amherst Economics Working Papers 2004-14, University of Massachusetts Amherst, Department of Economics.
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-12-07 (All new papers)
- NEP-CDM-2003-12-07 (Collective Decision-Making)
- NEP-LTV-2003-12-07 (Unemployment, Inequality & Poverty)
- NEP-MIC-2003-12-07 (Microeconomics)
- NEP-PBE-2003-12-07 (Public Economics)
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