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Consumption Quality and Employment Across the Wealth Distribution

Author

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  • Domenico Ferraro
  • Vytautas Valaitis

Abstract

In the U.S., market hours worked are approximately flat across the wealth distribution. Accounting for this phenomenon is a standing challenge for standard heterogeneous-agent macro models. In these models, wealthier households consume more and work fewer hours. We propose a theory that generates the cross-sectional wealth-hours relation as in the data. We quantify this theory in a heterogeneous-agent incomplete-markets model with three key features: a quality choice in consumption, non-homothetic preferences, and a multi-sector production structure. We show that the model produces consumption expenditure patterns consistent with the data and realistic “quality Engel curves”.

Suggested Citation

  • Domenico Ferraro & Vytautas Valaitis, 2025. "Consumption Quality and Employment Across the Wealth Distribution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(3), pages 1801-1836.
    • Handle: RePEc:oup:restud:v:92:y:2025:i:3:p:1801-1836.
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    File URL: http://hdl.handle.net/10.1093/restud/rdae052
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