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affects spending. In particular, we looked at two dimensions of income inequality: the distribution of workers’ salaries in the firm they work at (for this, we used the Gini coefficient – a common measurement of inequality); and where a person’s salary ranks compared to others in their firm. The results provide a compelling case for the contribution of status anxiety to the negative outcomes linked to income inequality. They also highlight a troubling connection We found that (given the same salary and purchasing power) the higher the inequality in a workplace the greater the proportion of income spent on luxury goods, such as antiques, champagne, jewellery and artworks, rather than on discretionary items or necessities. Here, discretionary spending includes clothing, a meal out or a trip to the hairdressers, for example, while necessities include groceries, medicines, heating and lighting. The lower someone’s salary is, the greater the effect. A similar effect occurs with between income inequality and luxury goods spending. salary ranking. People who are ranked comparatively low in their workplace appear to compensate by buying proportionally more luxury goods than people who are more highly ranked. This time, the effect is strongest for higher salaries. The results should interest a number of stakeholders. For organisations that focus on mental health issues, the findings suggest that income inequality and anxieties about social status may drive people to buy luxury goods at the expense of vital necessities. Their wellbeing may suffer as a result. For marketers, the research identifies specific factors that influence consumer choices in situations of income inequality.
And, given that luxury goods spending may be funded by borrowing in these situations, lenders and other financial services firms will be interested from the perspective of both commercially appropriate and responsible lending. Organisations more generally should also take note. It is a common argument that high executive salaries are a necessary product of free-market competition – a price that must be paid to attract and retain the best talent. The result is a striking level of inequality. In 2021 the median CEO pay for FTSE 100 companies was £3.41 million, a staggering 109 times that of the average UK full-time worker. Our findings show that decisions on remuneration may have hidden consequences that indirectly affect employees’ health, and thus firm performance, in a negative way. Moreover, it is not just poorer, lower-paid workers who are affected. When inequality is high, everybody suffers to some extent if they are obsessing over what their colleagues are earning and buying. This brings us to policymakers. These findings suggest that, as far as people’s
inequality (in and of itself) may well be harmful. This is highly relevant in a world where there is ongoing debate over the merits of trickle-down economics and a focus on the distributional effects of taxation. Or where there are claims that levels of inequality matter less, so long as policies improve the living standards of the lowest paid – a ‘rising tide lifts all boats’ approach. Instead, it seems that, while those at the top continue to accumulate wealth and add to their superyacht collections, many other lives are being holed below the waterline as those at the bottom try to keep up.
I t is hard to escape the news that we are in the midst of a cost of living crisis. Millions of people in the UK are facing the greatest squeeze on income for a century. Yet some will be hit harder than others. It is hard to imagine the richest 10 per cent of households, who own a combined 43 per cent of the country’s wealth, struggling with the rising cost of food and fuel. Meanwhile, the bottom half own just nine per cent, according to stark figures from the Office for National Statistics. For them, the coming winter is likely to be far more difficult. Warm banks have already begun opening across the country, offering a refuge for those who are struggling to pay their spiralling heating bills. Against this bleak backdrop, it is perhaps surprising that the luxury goods market has proved remarkably resilient. Global sales were expected to reach $320 billion in 2022, a remarkable figure in a C OVID-stricken
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world where 719 million people spent the peak of the pandemic surviving on less than $2.15 a day. Even with household budgets tightening and discretionary spending under pressure, people’s preoccupation with status may be causing them to prioritise luxury items over daily necessities. For example, a worker’s concern with what their colleagues earn, or where they rank in the firm’s salary ‘league table’, may lead them to buy a designer watch rather than groceries. They may even borrow money to buy the watch, committing themselves to a cycle of even greater financial hardship. Wealth inequality has long been associated with negative social, health, and economic outcomes, from higher rates of obesity and diabetes to lower life expectancy. How and why it caused these problems was less clear. One explanation is status anxiety. The idea being that greater wealth and income inequality tends to focus people’s attention on their position in the social hierarchy.
The subsequent stress of monitoring and improving this position, and ‘keeping up with the Joneses’, negatively impacts on their lives. Testing this hypothesis is not easy, but one potential route is to look at the relationship between income inequality and spending habits. Status anxiety is associated with a tendency to devote more resources to acquiring ‘positional’ goods that signal wealth and income, like luxury brands. Essentially, greater inequality should lead to more luxury goods spending. The challenge has been finding the data to demonstrate this relationship at an individual level. However, new approaches that use the digital footprints people leave behind when they spend money electronically or engage with the internet make this possible. My research colleagues and I were able to combine payroll data from over 680,000 people at 32,000 organisations with digitally derived spending information for a 10-month period in 2019 to see how income inequality
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wellbeing is concerned,
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