Consumption Quality and Employment Across the Wealth Distribution

Domenico Ferraro and Vytautas Valaitis

The Review of Economic Studies, 2025, vol. 92, issue 3, 1801-1836

Abstract: In the U.S., market hours worked are approximately flat across the wealth distribution. Accounting for this phenomenon is a standing challenge for standard heterogeneous-agent macro models. In these models, wealthier households consume more and work fewer hours. We propose a theory that generates the cross-sectional wealth-hours relation as in the data. We quantify this theory in a heterogeneous-agent incomplete-markets model with three key features: a quality choice in consumption, non-homothetic preferences, and a multi-sector production structure. We show that the model produces consumption expenditure patterns consistent with the data and realistic “quality Engel curves”.

Keywords: Labor supply; Quality choice; Heterogeneity; Aggregation; Tax policy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:92:y:2025:i:3:p:1801-1836.

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