EurosThere is an excellent post on the New Economist blog (read it here) that discusses a recent study about whether there is a correlation between working hours and income inequality – simply put, the need to ‘keep up with the Joneses’ and to work to get the possessions that others in society have. The economic term for this is the Veblen effect. The full journal article, written by Samuel Bowles and Yongjin Park, to which the blog refers can be found here.

Now, within reason, the argument seems to be a sound one, and the authors of the article provide plenty of decent research to back this up, looking at 10 different countries over 40 years. So what political conclusions can we draw from this?
(1) The UK is continually objecting to the EU Working Time Directive to restrict working time to 48 hours per week. Is the only real way to get to grips with the UK working time problem actually to get to grips with income inequality?
(2) The paper seems to add further weight to Richard Layard’s work on happiness in which he looks at whether more equal societies are on average happier. His analysis is in terms of how the people feel, and this seems to tally with the Bowles and Park research.
(3) Ideas that a flat-rate income tax would work well seem to be called into question by this research – they would have the impact of driving up working hours as inequality would rise.

Now, behind all of what I write is the assumption that our aim should be for happy, content, and generally equal societies where citizens do not slog their guts out to buy a new car so they have the status of their neighbour. Of course, if you just want to get your GDP growing and are content to ignore the impacts on your society, just ignore all of what I have just written…

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