Consumption Quality and Employment Across the Wealth Distribution

Abstract

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