Does greater income inequality cause increased work hours? New evidence from high income economies

Abstract

We explore the extent to which individual's allocation of time between labour and leisure is affected by the consumption standards of the rich. Utilizing a panel data methodology and panel Granger causality tests we investigate the relationship between income inequality and work hours for a cluster of 24 high‐income OECD countries over the period 1990–2015. Four alternative measures of income inequality are considered. We find that greater income inequality is associated with longer work hours indicating stronger concern for conspicuous consumption rather than conspicuous leisure. Even though the resulting estimates lend support to the theoretical framework on consumption emulation, the generated evidence also appears to be in line with a Duesenberry's and Frank's expenditure cascading approach. The ambiguity however arising from the Granger Causality tests appears to lead – to a certain extent – to different conclusions about the direction of causality or whether a causal relationship does even exist. It is therefore imperative that caution should be exercised when interpreting the direction of the causal dimension