Keeping up with the Joneses: Income Comparisons and Labour Supply

We investigate whether working time is related to the intensity of income comparisons and relative income. Our simple theoretical model demonstrates that the effects of relative income concerns depend on whether an individual can choose contractual working hours and/or overtime. In the empirical analysis we rely on novel data from the German Socio-Economic Panel (SOEP), which contains direct information on comparison intensity and perceived relative income with respect to predetermined reference groups. In line with our theoretical model we find that overtime rises with the intensity with which respondents compare their income to that of other individuals of the same occupation and that overtime declines with perceived relative income. This is consistent with 'Keeping up with the Joneses' preferences.