One of the costs of inequality is that it causes people to work too much. That's the claim of this paper (pdf) by Samuel Bowles and Yong-Jin Park in the latest Economic Journal.
They show that there's a strong correlation between working hours and inequality. Countries where inequality is high - such as the UK and US - have longer working hours than more egalitarian countries such as Norway or the Netherlands.
This, say Bowles and Park, shows that Thorsten Veblen was right. He said that a desire to keep up with the Jones motivated people to work harder:
The propensity for achievement -- the instinct of workmanship -- tends more and more to shape itself into a straining to excel others in pecuniary achievement. Relative success, tested by an invidious pecuniary comparison with other men, becomes the conventional end of action. The currently accepted legitimate end of effort becomes the achievement of a favourable comparison with other men... Among the motives which lead men to accumulate wealth, the primacy, both in scope and intensity, therefore, continues to belong to this motive of pecuniary emulation.
The higher is inequality, the stronger will be this motive.
You might think there are obvious alternative reasons for the link between inequality and hours:
1. Inequality means there are bigger incentives for success, so people work harder. This predicts that working hours will be longer where there are greater inequalities within firms. However, Bowles and Park estimate that aggregate working hours are sensitive to wage differences across industries. It's difficult to see how wages in another industry can give someone an incentive to work longer.
2. IT has caused a rise in both inequality and working hours. However, Bowles and Park show that there was a link between the two before 1983, well before the IT revolution.
If this is right, consumption externalities are more important than previously thought. The big spending of the rich doesn't just make others feel inadequate, but causes them to work too hard. This, say Bowles and Park, strengthens the case for a progressive consumption tax.
There is, though, another view. Will Wilkinson has said that it might be cheaper for the poor to simply change their preferences, and stop envying the rich.
I think this is good advice generally. But there is a problem with it. Bowles and Park suggest that the link between inequality and working hours operates through social norms, rather than conscious individual choices. It might be easy to ignore Paris Hilton when deciding how long to work - but it's a lot harder to walk out the office when everyone else is working.
A personal note: I suspect my own history, perversely, supports Will's and Veblen's point. One reason why I was able to move from a high to lower-paying job was that, as a relatively solitary person, I was less exposed to invidious comparisons between my spending and others, and so felt less need to keep up with richer people.
More stuff. Two more technical papers on the links between consumption externalities and labour supply are here and here (pdfs).
I don't understand point 1.
Sombody who holds a particularly rosy view of the UK and US ecnomony might argue that relative economic freedom (or lower taxes) means greater opportunity for (some) people to do well for themselves by working hard, so that's what happens. Hence we - as you posit in point 1. - inequality means there are bigger incentives for success. I don't understand why this predicts longer hours where there is inequality within firms, and is therefore contradicted by "aggregate working hours [being] sensitive to wage differences across industries". Doesn't that sensitivity just mean that across the data set, aggregate working hours are seen to increase as wage differentials between industries increase? Afterall, nothing says that the opportunities for high reward from hard work that economic freedom creates needs be equally distributed across industries. Or have I misunderstood the argument and made a fool of myself in public again.
I don't like this idea that people are so motivated by keeping up with the Jones (although I don't dispute that some are). To me it smacks of smug academics sneering at thrusting corporate types and their Porsches. (How can we explain these ghastly people and their dedication to their ghastly jobs?) Hey presto, it's nothing more than vulgar one-uppmanship - I get to feel superior and feel better about driving a Micra.
I prefer another formulation.
Say I want to earn enough for a holiday home in France. Well, perhaps that's because a holiday home in France is a nice thing to have - and the fact that some of my peers have one too merely demonstrates that this is a realistic desire. Doesn't that "explain the data" without being so irritatingly patronising?
Posted by: Paddy Carter | December 12, 2005 at 02:59 PM
What Paddy said.
"The big spending of the rich doesn't just make others feel inadequate, but causes them to work too hard."
What's this "too hard" bit?
How about "the existence of those more successful than themselves encourages people to work harder, which in turn makes us all richer".
A better interpretation of the same facts, I think.
Posted by: andrew duffin | December 12, 2005 at 03:48 PM
It makes some of us richer, Andrew, but not happier. People earn more to mitigate the lack of self-worth they feel from others being richer. And because they spend the "extra" they earn (to match others' consumption) they don't accumulate wealth over time.
Posted by: chris | December 12, 2005 at 04:36 PM
I’m a little perplexed at this thinking. Humans are status seekers...even Polly Toynbee has managed to note that monkeys at the bottom of the heirarchy have worse health than those at the top and when put into an environment where they are top dog (sorry) enjoy that better health themselves.
So I’d say that the construction of social heirarchies is innate.
The question then becomes what is the least damaging thing to use in the construction? At least if people are using income (assuming that it’s gained by useful toil) then not only do they have that higher income but as you Chris pointed out about Layard, there’s also that increased production for others to consume.
Would we prefer the heirarchy to be based upon birth (an aristocracy, as we’ve had), devotion (theocracy), intelligence (rule by professors? Urgh!) or what?
For heirarchy there will be.
Posted by: Tim Worstall | December 12, 2005 at 05:39 PM
Tim:
"At least if people are using income (assuming that it’s gained by useful toil)"
That's rather a large assumption, and I wonder how we could legislate for it. A 100% inheritance tax, perhaps?
"Would we prefer the heirarchy to be based upon birth (an aristocracy, as we’ve had), devotion (theocracy), intelligence (rule by professors? Urgh!) or what?"
Page views, obviously. (Inbound links are *so* 2004.)
Posted by: Phil | December 12, 2005 at 11:10 PM
The French model is so much better. Ignore that man over there claiming that the 20% youth unemployment rate had anything to do with the recent riots There was no connection.
Posted by: Robert Schwartz | December 13, 2005 at 12:24 AM
[might be cheaper for the poor to simply change their preferences, and stop envying the rich]
unlikely; it's more likely cheaper for the rich to change their behaviour, because there are fewer of them.
[I’d say that the construction of social heirarchies is innate]
But the whole point of this study is that you can have a social gradient like they have in Sweden, or one like they have in Brazil, and that's a real choice which matters.
Posted by: dsquared | December 13, 2005 at 07:30 AM
Ah, the old socialist approach: reverse the direction of causation and voila! you have an argument for redistribution.
Inequality does not CAUSE people to work too much: it is people "working too much" that allows them to prosper. Those that chose not to strive are not going to do as well. Hence inequality. OF OUTCOME.
"it's more likely cheaper for the rich to change their behaviour, because there are fewer of them." Eat the Rich: you know it's the way forward. And they are delicious as well.
Posted by: The Pedant-General | December 13, 2005 at 11:39 AM
"Those that chose not to strive are not going to do as well. Hence inequality. OF OUTCOME."
I don't like to harp on this point, but I really do wonder how we could test this argument. Without a 100% inheritance tax, that is.
Posted by: Phil | December 13, 2005 at 12:25 PM
I think the association between inequality and work hours might also be explained by the backward-bending labor supply curve. In societies with high income disparity, the majority work longer hours because they have to.
There are reams of quotes available from the employing classes of Britain during the enclosures, arguing that laborers couldn't be forced to work hard enough unless they were made destitute. When laborers had independent access to the means of subsistence, they worked at wage labor only for supplemental income; they could afford to rely on subsistence farming for long periods, and go back to working for a boss only when they felt like it.
Posted by: Kevin Carson | December 15, 2005 at 04:32 AM
Ed Prescott showed that there was a very close correlation between marginal tax rates and hours worked. ( http://minneapolisfed.org/research/qr/qr2811.pdf )
A low-inequality society has high taxes, which means higher marginal tax rates on rich and poor alike, which means everyone works less.
Disentangling this effect from the Veblen effect (which surely exists to some degree) would be quite tricky, but the Bowles & Park paper doesn't seem to address marginal tax rates.
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