[Epistemic Status: Speculative and based on availability heuristic. Still, the answer feels right]
Not long ago, Tyler Cowen gave a talk at my alma mater called, “Why hasn’t economic progress lowered work hours more?”
Mr. Cowen starts the lecture by talking about John Maynard Keynes’s prediction back in 1930, that by the time we get to 2030 (it’s getting close!), the average person would only work about 15 hours a week. Cowen then talks about the income effect and the substitution effect, and the breakdown of hours among different demographic groups.
One of the pieces of data that resonated most with me was that the top 1% is the group that is most dominated by substitution effect, rather than income effect. Or, stated without econ jargon, the richest, even though they need the money the least, are the ones working the most.
Seems counterintuitive, doesn’t it?
You’d think that once you’d earned about $300,000 a year, you’d get to the point where you’d say, “Gee, I have enough money. What I could use right now is some time to spend it.”
A person who came to this conclusion and then acted on it would be what Cowen calls a “threshold earner.” They’d be following through on Keynes’s logical prediction that once you had enough money, you’d then make an effort to enjoy the fruits of your labor, rather than laboring more.
But that’s not what’s happening.
Instead, it’s the exact opposite. They elite and wealthy are more obsessed with work than ever.
Mr. Cowen reviews the data and concludes, basically, “It must that these people want to work those hours.”
Perhaps. Maybe that’s part of it. But as a lawyer who had the opportunity to inhabit the ecosystem where many of these creatures reside, I have a different theory.
My theory is that high-status workers work more because status is relative, and that nobody is more status-conscious than the top 1%.
I remember when I first went to law school, the salaries of first-year lawyers were $125,000 a year at all of the major law firms (it’s now $160,000). If you were enrolled at one of the T-14 law schools (top 14), as they were known, you were virtually guaranteed to get one of these jobs at graduation (or at least that was true back in 2006). To someone who had been accustomed to living well on 1/10th of that as an English teacher in Barcelona, this seemed an impossibly large salary to me. One of my best friends in law school, though, was from New York and had many friends who had already been through law school, and were working those jobs. He told me that some of his friends struggled to live on that salary.
This was incomprehensible. How could a person make that much money struggle to live on that income? That’s insanity!
My friend gave me an explanation of why this happens, and why it’s so common, that has stuck with me to this day. He said, “You may think that $125,000 is a lot of money now, but everyone at the law firm makes at least that. Second-year lawyers make $135,000; third-year lawyers make $145,000. Plus bonuses of $30,000-$200,000 a year. All the partners, of course, make millions a year. Right now, $125,000 is a lot of money to you. But when you get to the law firm, all it makes you is the poorest person in your new social circle.”
That’s why high-status earners work more. It’s not that they enjoy the work so much. It’s that they enjoy the status benefits of the work. And as anyone who has had the pleasure of hearing about the drama associated with admittance into Manhattan private pre-schools can tell you, status is an arms race that doesn’t end when you reach the top 1%.
If you were a 74th percentile basketball player, you probably wouldn’t define your self-image based on your basketball-playing ability. But if you played Division I college basketball, there’s a good chance that you do or that you at least once did.
Likewise, for most, the more competitive you get in social status games, the more they matter to you.
My guess is that if a top 1%-worker were dropped into a different ecosystem where they were no longer surrounded by other top 1%-ers, they’d immediately work less. They’d probably still work more than the average person, but without a competitive ecosystem pushing them to ever-higher levels of status, they’d immediately settle into an equilibrium where they could position themselves at the top of the hierarchy doing as little work as possible.
Also, as a final comment, it may be worth noting that the question of this post creates its own paradox. It’s hard to isolate “high-status threshold earners,” because once someone decides to step off the high-speed treadmill, they usually cease to be high status.