Relative Consumption: A Model of Peers, Status, and Labor Supply

What is it about?

The paper offers a "Catching up with the Joneses" type of explanation to why the ratio of the hours worked by the more productive workers to the less productive workers have been going up over the last century and a half in the US. In a nutshell, the model uses peer group comparisons to explain how urbanization has brought together a lot of highly productive workers (e.g. doctors, lawyers, etc.) into cities resulting in interpersonal comparisons of consumption among themselves and resulting in higher working hours. This leads to higher income inequality over time and does not necessarily improve the utility of higher productive individuals whose peers continue to keep up with their increased income.

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