Keeping Up With Everybody

In 2001, the Norwegian government made its tax records publicly searchable online, so that every citizen could now look up what any other citizen earned. This was not entirely new—the country’s tax data had theoretically public for years—but the internet made it frictionless. Journalists could now scrub entire neighborhoods, neighbors could check each other out, and colleagues could compare their salaries with one another’s.

Ricardo Perez-Truglia used this moment as a natural experiment. He tracked self-reported well-being before and after the records went online and found that the gap between higher- and lower-income Norwegians widened by 29%. Absolute incomes did not change; what did was knowing how you compared to other people.

This is the central finding of research on social standing: what people care about is not how much they have in absolute terms, but where they stand relative to those around them. It explains a long list of behaviors that seem irrational under standard economic assumptions.

Thorstein Veblen noticed this in 1899, before there were smartphones or social media (or economists to argue with his heresy). The Theory of the Leisure Class introduced the term conspicuous_consumption to describe spending whose primary purpose is to signal social rank. His key insight is that the signal only works if it is costly: something that only the wealthy can afford communicates rank precisely because of its price.

Similarly, in a world where most people have to do physical labor, conspicuous leisure is only possible for the rich. As leisure became more broadly available, the signal shifted: today, being seen to be overworked and constantly in demand signals high status: the business traveler at the airport in the expensive suit checking email at midnight is the modern equivalent of the nineteenth-century aristocrat who demonstrably never lifted anything heavy.

Veblen pointed out that status competition is structurally self-defeating. If I buy a larger house to signal rank and my neighbors respond by buying larger houses, we have all spent money and all returned to the same relative position. The competition is real but the gains are illusory; the spending continues because the first person to stop stops loses ground to those who don’t.

Robert Frank built on Veblen’s work with a careful study of wage patterns within firms. Standard economics predicts that workers will always move toward higher absolute pay: if they can earn more elsewhere, they will go elsewhere. Frank found that this prediction fails systematically. Workers at the bottom of a firm’s pay distribution are paid above their marginal productive value, while workers at the top are paid below it. The spread is not random: it is consistent with workers accepting lower total pay in exchange for higher rank within their peer group.

The implication is that a programmer who is the highest-paid person on a small team may prefer that position to being a lower-ranked member of a higher-paying team, even if the absolute salary differential favors the larger team. This is not irrationality: rank confers real benefits, so trading some income for rank is a sensible exchange. Standard economics fails to predict the trade only because it refuses to count rank as a good.

Frank’s local-rank argument helps explain the consistent finding in salary surveys that the highest correlate of worker satisfaction is not absolute pay but pay relative to colleagues doing similar work. Across many countries and industries, fairness within the reference group matters more than the number itself.

Fred Hirsch introduced the concept of positional goods, whose value depends on how many other people have it. A house with an ocean view is a positional good: if everyone had a house with an ocean view, the view would cease to confer distinction. A senior job title, a degree from a prestigious school, or a table at an exclusive restaurant are all examples.

Hirsch pointed out that positional goods cannot be democratized. Refrigerators and mobile phones can eventually be afford by almost everyone, and everyone genuinely benefits. Positional goods cannot work this way. For example, if a prestigious university expands admissions to let in everyone who wants to attend, its value signal collapses. This is precisely what has happened with university degrees in wealthy countries since the 1960s. When only a small fraction of the population held degrees, a degree signaled something. As participation rates rose from 5 percent to 50 percent, the same degree began to signal much less, so the game shifted to which university, then to postgraduate qualifications, then to increasingly specific institutional prestige. Each generation has to spend more to achieve the same relative position as the previous one. This is not a problem that can be solved by making university cheaper or more accessible: that simply changes the positional good everyone is competing for.

The empirical case that rank rather than income drives well-being has been built up over two decades. An analysis of the British Household Panel Survey, which tracked thousands of households over many years, found that once income rank was included in the model, absolute income had no statistically significant effect on life satisfaction. What predicted whether someone was satisfied with their life was where they stood compared to their peers.

Wilkinson and Pickett extended this argument at the national level with evidence that more unequal societies perform worse on almost every social indicator, regardless of their average wealth. More equal societies have lower rates of homicide, mental illness, obesity, teenage pregnancy, and imprisonment. They have higher rates of trust, social mobility, and life expectancy. This pattern holds across wealthy countries: the United States, the United Kingdom, and Portugal, which are among the most unequal wealthy nations, perform poorly; Japan, the Nordic countries, and the Netherlands, which are among the most equal, perform well. The causal mechanism is status anxiety: higher inequality creates steeper hierarchies, which produce more corrosive competition for rank.

So let’s talk about social media. Before digital platforms, status competition based primarily on physical proximity: you compared yourself to your neighbors, colleagues, and relatives. Platforms have replaced that bounded reference group with a global feed curated by algorithms optimized for engagement rather than accurate representation.

The comparison you are now offered is not with your actual neighbors. It is with the most aspirational version of everyone you have ever met. The result in South Korea, India, the UK, and Brazil is an intensification of status anxiety without any corresponding change in absolute circumstances. Someone whose life is objectively comfortable can be made to feel inadequate by a platform that continuously serves them evidence that other people are more attractive, a better parent, or has traveled more widely.

Social media platforms did not create the desire for status. What they did was put that desire on a subscription model, charge advertisers to place products in the resulting stream of anxiety, and call the resulting business a social network. It’s a game that only they can win.

see the whole series · email me

Boyce2010

Christopher J. Boyce, Gordon D. A. Brown, and Simon C. Moore: “Money and Happiness: Rank of Income, Not Income, Affects Life Satisfaction.” Psychological Science, 21(4), 2010, 10.1177/0956797610362671.

Frank1985

Robert H. Frank: Choosing the Right Pond: Human Behavior and the Quest for Status. Oxford University Press, 1985, 9780195049459.

Hirsch2015

Fred Hirsch: Social Limits to Growth (2nd ed). Routledge, 2015, 9781138834941.

PerezTruglia2020

Ricardo Perez-Truglia: “The Effects of Income Transparency on Well-Being: Evidence from a Natural Experiment.” American Economic Review, 110(4), 2020, 10.1257/aer.20160256.

Veblen1899

Thorstein Veblen: The Theory of the Leisure Class. Macmillan, 1899.

Wilkinson2011

Richard Wilkinson and Kate Pickett: The Spirit Level: Why Greater Equality Makes Societies Stronger. Bloomsbury Press, 2011, 9781608193417.