Consumption Quality and Employment Across the Wealth Distribution

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