Abstract

Are we sacrificing leisure time, and damaging our environment, driven by competition for status? We show that panel data on labour hours and productivity supports the idea that labour supply is levelling off in rich countries, after a long period of decline. We build a model including relative consumption of status goods in the utility function which is consistent with labour supply levelling off, and shows that distortions increase over time, motivating increasingly stringent policy. We calibrate the model and test its ability to match long-run data from 15 countries on labour supply given labour productivity and taxation. Finally, we extend the model to include environmental damages, and show that a tax on status goods may be more important in delivering optimal environmental quality than taxation of polluting emissions.

Practical information