Increasing income inequality induces people to work longer hours, according to new
research by economics professors Samuel Bowles and Yongjin Park.
Writing in the latest issue of the Economic Journal, they explain that keeping up with
the Joneses requires longer hours on the job because the consumption styles that
people wish to emulate are those of the rich – and in many parts of the world, the rich
are pulling away from the rest.
In a similar way, people in countries where economic inequality is in decline tend to
reduce their working hours. In Sweden, for example, average annual working hours fell
by 25% during the heyday of social democratic levelling between 1960 and 1980. But in
the next two decades, with inequality rising again, Swedish working hours increased by
12%.
Differences in working hours between countries also reflect economic disparities.
Compared with more equal economies such as Sweden, Germany and the
Netherlands, workers in the United States work far longer hours. In the year 2000 for
example, they clocked 450 more working hours on average than their Dutch
counterparts, a difference of three months of work by US standards.
The researchers estimate the effect of inequality on working hours using a variety of
measures of income equality and working hours for ten advanced economies over the
period 1963-98. They control for the correlated effects of both changes over time and
national differences in such possible influences as the fraction of women in the labour
force, the wage, the level of trade union membership and unemployment.
Controlling for all of these factors, the effect of inequality on working hours is
substantial. For example, the authors’ estimates indicate that about three-fifths of the
difference in working hours between Sweden and the United States in the early 1990s
was due to greater US income inequality.
The authors consider the possibility that the ‘rat race’ effect of greater inequality reflects
ordinary incentives rather than trying to keep up with the rich. According to this
alternative view, the greater the rewards from moving up, the greater will be people’s
willingness to work more in the hope of being promoted.
But this does not explain the Bowles and Park results. Drawing on another study by
Park, they report that inequality among male workers in the United States has a strong
influence on whether their wives work outside the home. It is difficult to see how the
promotion incentive could be at work in this case.
The idea that consumption standards are set by the rich and then cascade down the
ladder of economic success, imposing a rat race on those below is from the maverick
American economist Thorstein Veblen’s 1899 classic, The Theory of the Leisure Class.
Bowles and Park reason that what Veblen termed the ‘conspicuous consumption’ of the
rich is analogous to standard textbook ‘spillover’ effects like pollution. The conventional
economic prescription for these negative spillovers is that they should be taxed, a policy
that Bowles and Park endorse.
But to curb the downward cascade of conspicuous consumption, they show, what is
needed is not a flat tax, but one that targets the consumption of the well to-do standardsetters.
ENDS
Notes for editors: ‘Inequality, Emulation, and Work Hours: Was Thorstein Veblen
Right?’ by Samuel Bowles and Yongjin Park is published in the November 2005 issue
of the Economic Journal.
Samuel Bowles is at the Santa Fe Institute. Yongjin Park is at Connecticut College.
For further information: contact RES Media Consultant Romesh Vaitilingam on 0117-
983-9770 or 07768-661095 (email: romesh@compuserve.com); or Samuel Bowles via
email: on bowles@santafe.edu