Understanding the ‘Wealthy Working Class’
Affluent Americans care more about the quality of their consumption than its quantity
If you were to ask a layperson what a wealthy American does in a typical day, they might describe a life in the lap of luxury. It’s easy to picture someone who lives off the income generated by the hard work of others enjoying a leisurely lifestyle without engaging in any labor themselves.
Although many may aspire to this lifestyle, the truth is that it’s far from reality for many rich Americans. Data on the lives of a representative sample of U.S. households from the Panel Study of Income Dynamics provides an incontrovertible fact: Wealthy Americans work as much as or more than the less affluent ones. They are just as likely to have jobs, work nearly the same number of hours each week and maintain a similar number of working weeks throughout the year.
Furthermore, a significant portion of the wealth held by affluent Americans is generated, not inherited. And they have accumulated it by working long hours, leveraging what economists refer to as “human capital,” which encompasses innate abilities and hard and soft skills that contribute to enhanced productivity on the job, whether it be for somebody else’s company or for their own.
I like to think of this group as the “wealthy working class.” They are truly human capitalists—neither rentiers nor old-fashioned bourgeoisie, let alone European-style aristocrats.
To Work or Not To Work?
Why do wealthy Americans continue to work even though they can afford a comfortable lifestyle without doing so? A basic theory, backed by a large body of research, helps answer this question.
The key notion to keep in mind is that human capital is not inherited, like land; rather, it is accumulated over the years in and out of school and via life experience. This offers up a stream of constant learning—learning how to get better and faster at doing what we do. The better we get, the greater the reward for our efforts—be it wages or profits. Work incentives do matter—consider a highly progressive tax system that takes a substantial share of the additional income earned by individuals at high income levels. Such a system can decrease the incentive for high earners to work more or invest in further developing their skills.
So all in all, the more we work, the more we learn, the more human capital is accumulated, and the higher the reward to work. This self-reinforcing loop is one of the key forces behind wealth accumulation.
Of course, it’s not the only path to wealth. One can get lucky and pick the right stock, or receive an inheritance from wealthy parents. But the bulk of wealthy Americans are successful lawyers, surgeons, top-level managers, professional athletes and CEOs. All made their wealth based on their expertise, know-how, hard work and talent, and they competed in the market to attain their lofty positions. Their most valuable asset is not money, but human capital, accumulated over years of learning, trial and error, and likely occasional upsets and setbacks.
So, wealthy people may continue to work because the reward for doing so is extremely high. Some may even enjoy working more than anything else. This explanation definitely has some truth to it, but it is not the whole story.
Quality of Consumption, Not Quantity
When examining data on consumption expenditures across U.S. households, it becomes clear that there are systematic differences in what one would summarily think of as tastes and spending habits. The consumption patterns of wealthy households differ significantly from those of less affluent ones. Most of these differences arise not from wealthy households buying more items, but from their preference for higher-quality goods and services, which are naturally more expensive.
Think of beef and its quality grades assigned by the U.S. Department of Agriculture. Anyone can eat a steak; yet the price per ounce of beautifully marbled Wagyu beef is much (much) higher than the cut one can usually find at the butcher shop around the corner.
Or think of a good old-fashioned watch. By now, even the cheapest timepieces do an incredible job in accurately telling us the time of day. Yet the price of a Rolex is many times higher than an inexpensive watch from Amazon. They both count seconds, minutes and hours, but wealthy Americans tend to buy more expansive watches. Beyond the technology embedded into a watch, the “quality” of the watch matters to some—it confers a kind of status on the wearer.
The relationship between wealth and quality of consumption even makes it to the dinner table. Data from the Continuing Survey of Food Intake by Individuals conducted by the U.S. Department of Agriculture indicates that food quality consumption, measured by content such as vitamins A, C and E, calcium, cholesterol, and saturated and unsaturated fats, is closely related to household income. For example, higher-income households generally consume less saturated fat and cholesterol, which is often associated with healthier and higher-quality food choices. In contrast, the total quantity of food consumed, measured by caloric intake, shows little variation regardless of income.
Affluent Americans’ desire for quality over quantity even applies to things money can’t buy. This is perhaps even more evident if one considers health-related expenditures aimed at extending lifespan, as well as improving the quality of later years in life. And even more striking, if one considers the parental investments to improve the quality of life of our children and grandchildren.
It's clear, then, that wealthy Americans continue to work not because they want more stuff, but because they strive for an increasingly higher quality of life in all its facets.
Does Quality vs. Quantity Matter?
Rethinking how wealth affects people’s willingness to work is one of the most crucial aspects of well-designed government policy. Consider tax policy—specifically, how progressive the personal income tax should be. Conventional wisdom, too often abused in some policy circles, would suggest imposing a very high tax rate on those at the top of the income and wealth ladder. This logic critically hinges on the presumption that wealthy individuals assign little value to an extra unit of consumption, so that taxing their incomes implies rather small or negligible adverse supply effects. But this logic is based on the “more is better” view of consumption.
However, in our world where it’s the quality of consumption that matters, conventional logic falls short and may mislead policymakers into believing that work incentives are no longer important for those at the top.
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