Firstly, it’s important to understand the trade-off between work and free time, explains Wendy Carlin, professor of economics at University College London: “People work to earn income that they can spend on goods and services. As people become more prosperous, we expect them to want more free time and more goods. The question is, what is the balance between one and the other?”
Different societies make different choices. Carlin touches on the classic contrast between European and American work-life balance: “People say, ‘Europeans are just lazy and take a lot of vacation time,’ but they make different choices about how to use their higher standard of living, because what they really lack is time.” Veblen’s theory is why People are increasingly working in different countries, she explains.
“Some people are working two jobs just to survive, and some are working two jobs because they want the latest things, like a new phone or a new car,” Carlin said.
This may sound obvious to us, but it runs counter to traditional economic theory — which posits that we should be happy if our basic needs are met — and would have seemed insane to scholars 100 years ago.
“The assumption was that by now we’d be working only two days a week,” Carlin says, referring to a 1930 paper by John Maynard Keynes. Economic possibilities for grandchildrenIn “The Great Depression,” the economist predicted that improvements in technology and manufacturing efficiency would mean that people would only need to work 15 hours a week. “Instead, people will work two or three jobs, take two weeks of vacation, and buy more goods. Why will they do that? Because, as Veblen said, they are comparing themselves with other people.”
The rich get richer…
We may not notice the analysis of our work habits because we believe we have loftier motives deep down. But who can deny that we yearn for a new Porsche, a Chanel bag, or a week in the Hamptons? Veblen’s writings suggest that people at all levels of society work to acquire symbols that they perceive as belonging to a higher class. It turns out that the more extreme that disparity is – the more unequally wealth is distributed in a society – the harder people try. “The greater the inequality, the stronger the Veblen effect,” says Carlin.
A study comparing the income share and average work hours of the top 1 percent of earners supports this idea: “The Nordic countries were very unequal a century ago,” says Karlin. “Then inequality fell dramatically, and at the same time work hours fell. People became less interested in comparing themselves to the super-rich and decided to have more leisure time.”
If it’s not immediately clear how that impacts how we live — and spend — today, consider that income inequality in the United States has worsened dramatically over the past 40 years, according to a 2020 report from the Pew Research Center. The report states that “the wealth gap between the richest and poorest American households more than doubled between 1989 and 2016,” and points out that the U.S. Gini coefficient (a measure of income inequality) was higher than any other G7 country. So it’s no wonder that the forecast for luxury sales in the U.S. is bright.
The Instagram Effect
There is another important element to understanding the increasing influence of Veblen goods over us: their visibility. Because Veblen’s theory depends on the recognition of others, for something to count as a traditional Veblen good, its price, and therefore its exclusivity, must be easily understood by others.
This simple fact is the foundation of luxury goods adorned with big logos, such as Louis Vuitton’s monogrammed Boston bags, Rolls-Royce’s oversized grille, or the instantly recognisable designs of iconic wristwatches like Audemars Piguet’s Royal Oak.
