The human motive to pursue relative social status is widely recognized within and beyond academia, but there is still room to integrate it further with economic theory. Status-seeking seems to have implications on labor supply and could explain why people tend to work the same amount across time, regions, and income levels. There are many implications of social status in consumers’ utility functions, including some evidence for questioning the relationship between happiness and economic growth.

The human pursuit of social status has been recognized by many scholars of different fields and eras, from historic philosophers and early economists to modern researchers in a variety of social sciences. Bernard Mandeville (1723) famously said “Pride and vanity have built more hospitals than all the virtues together”, and Adam Smith (1790) put it: “It is the vanity, not the ease, or the pleasure, which interests us”. James Duesenberry (1949) became recognized partly for suggesting that the basic factor driving a person toward high consumption is the social status resulting from higher income, and that people get utility based on relative measures. Even the engineering entrepreneur and the world’s wealthiest person Elon Musk has talked about relative social status, saying “people generally think of themselves relative to others, we are constantly rebasing our expectations. […] happiness equals reality minus expectations” (Rogan, 2018). Although given more notice recently, the concept of social status is rarely defined, derived, or described well in the economic literature, perhaps because it is approaching the threshold where it becomes a matter for other fields of study.

If the status motive is significant in explaining how individuals and societies act in response to economic changes, the phenomenon certainly deserves more notice in the economic literature. If the variable of social status is falsely omitted, the impact on our well-being from other variables may be overestimated. The purpose of understanding what factors are included in people’s utility functions is to predict people’s behavior in response to new economic states, in order to assess the consequences of certain policies. One instance where an increased understanding of social status could improve the effectiveness of policies is in the labor market. Whether the aim is to increase or decrease the amount of time citizens spend working, change tax rates, or reduce unemployment, we first need to understand what the labor supply functions of people look like. Perhaps the pursuit of relative social status affects the labor supply problem of individuals in such a way that may be exploited by economic policies, and thereby improve our societies and the well-being of the people.

The Easterlin paradox says that while individuals get happier with income, increases in aggregated national income do not increase average happiness among the citizens. Clark et al (2008) propose that human status-seeking behavior explains this paradox. Utility is a proxy for happiness, meaning that aggregate happiness is estimated in economics by the aggregate utility. Since social status is relative and depends on the status of others, i.e. reference-dependent, the marginal utility from pursuing status may not be diminishing with economic growth, if everyone is affected equally. Social status is relative to some reference point, which is a value based on other people in our surroundings, what we see on the internet, or average national statistics. The marginal utility from other sources, like consumption and leisure, is expected to be less reference-dependent, meaning that the marginal utility should be diminishing. Hence, as consumption levels increase, consumption becomes less influential in individuals’ utility functions, inducing greater weight toward relative social status. This means that everyone may be induced to continue working despite getting wealthier, for the purpose of maintaining a high relative social status. However, if everyone’s social status increases somewhat equally, the increase in aggregate utility is expected to be small since everyone’s reference points, the subject for comparison, increase simultaneously with the individual’s own social status. Thus, for sufficiently wealthy countries, there may not be a clear relationship between national income and aggregate utility, or national happiness as Easterlin suggests.

If this were to be true, the efforts for maximizing production, income, and economic growth may be questioned. If income does not lead to greater happiness, what is the point of economic growth?