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Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right

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  • Samuel Bowles

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  • Yongjin Park

Abstract

We 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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Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 409.

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Date of creation: Nov 2003
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Handle: RePEc:usi:wpaper:409

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Keywords: Interdependent utility; relative income; emulation; Veblen effects; work hours;

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  1. Linda Bell, 1998. "Differences in Work Hours and Hours Preferences by Race in the U.S," Review of Social Economy, Taylor & Francis Journals, vol. 56(4), pages 481-500.
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  8. Bagwell, Laurie Simon & Bernheim, B Douglas, 1996. "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, American Economic Association, vol. 86(3), pages 349-73, June.
  9. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1995. "Incorporating concern for relative wealth into economic models," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 12-21.
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  14. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
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  1. Ending the arms races
    by chris dillow in Stumbling and Mumbling on 2007-12-04 11:19:57
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