Kerwin Kofi Charles University of Chicago Erik Hurst University of Chicago Nikolai Roussanov University of Pennsylvania August 2007
Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. We demonstrate that these differences exist among virtually all subpopulations, that they are relatively constant over time, and that they are economically large. While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household’s economic position relative to a reference group. Using merged data on race and state level income, we demonstrate that a key prediction of our model - that visible consumption should be declining in mean reference group income - is strongly borne out in the data separately for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption. We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation.
We thank Mark Aguiar, Gary Becker, Matthew Gentzkow, Jonathan Guryan, Daniel Hamermesh, Kevin Murphy, Andy Postlewaite, Karl Scholz, Jesse Shapiro, and Francesco Trebbi for very useful comments and conversations. The paper has also benefited from comments from seminar participants at the University of Chicago, The IRP Summer Workshop, UCLA, Washington University, the University of Minnesota, Dartmouth College, the NBER Labor Studies Summer Program, the NBER Consumption Group Summer Program, and the St Louis Federal Reserve. We absolve all of responsibility for errors or omissions which remain.
Introduction In his famous study of consumption during the Gilded Age, Veblen (1899) speculated
that, for the particular individuals he studied, “Consumption is evidence of wealth, and thus becomes honorific, and …failure to consume a mark of demerit.” This notion that an aim of
consumption was to demonstrate one’s economic position to observers Veblen dubbed “conspicuous consumption”. Veblen’s focus was on the very wealthy, but nothing in the main thrust of his argument requires that the phenomenon he identified apply to these households exclusively.1 In this paper, we study households’ consumption of items which are readily
observable in social interactions, and which are portable across interactions. We call these goods “visible consumption”. Prompted by Veblen’s insight that the consumption and display of these items communicates information about economic status, and by the fact that few easily observable variables are as strongly correlated with economic status as is an individual’s race, we investigate a series of questions about visible consumption and race. A large body of anecdotal evidence suggests that Blacks devote a larger share of their overall expenditure to consumption items that are readily visible to outside observers than do Whites. Automobiles, clothing, and jewelry are examples of these forms of "visible" consumption. There has to date, however, been little formal analysis by economists of the degree to which these racial differences in consumption patterns actually exist in the data, what accounts for them if they do, and what the consequences of any such differential expenditure might be.2, 3 We address these questions in this paper. The first part of our paper documents differences by race in expenditures devoted to visible consumption items. Using data from the Consumer Expenditure Survey (CEX) from the 1 In fact, predating Veblen’s analysis by a hundred and...