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DURHAM — A Duke marketing professor co-authored a study that found that consumers spend less on non-essential items like jewelry or airfare during recessionary times even when they don’t have to.
The authors of the study argued that people spend less on non-essentials even when they’re unaffected by an economic recession because can they spend less and still maintain their social standing.
“For Louis Vuitton or Lamborghini, it’s not just that people have less money. A lot of the people on the top 1 percent, they were not affected by the recession,” said Wagner Kamakura, a professor of global marketing at Duke University’s Fuqua School of Business. “It’s what we call comparative consumption – whatever causes us to change our consumption, based on what we see other people doing,” he added.
Wagner co-authored the study, which is called “How Economic Contractions and Expansions Affect Expenditure Patterns.” He worked with Rex Yuxing Du, a former student of his at Duke, he said, who is now a professor of marketing at the University of Houston’s C.T. Bauer College of Business. The study was published online in the Journal of Consumer Research.
For the study, the authors examined spending data from 66,368 U.S. households from 1982 to 2003. During that period, the U.S. economy dipped into three recessions, according to the study, in July 1981 to November 1982, July 1990 to March 1991, and March to November 2001.
Their data came from an annual survey by the U.S. Bureau of Labor Statistics, Kamakura said.
In the study, the authors challenged an assumption that changes in expenditures during times of economic recession are “simply” due to budgetary constraints.
They argued that some consumers are also reducing spending on non-essential goods because they can spend less to maintain their standing relative to other consumers.
They reported that they found that the “vast majority” of the changes in spending were in-line with their predictions: Spending on “positional” items like dining out, clothing, and airfare became relatively less desirable in a recession.
“As you have more and more consumption budget, (you) devote more of that to jewelry, entertainment occasions, and so on,” Kamakura said. “When there is a recession, those lines, they shift upwards or downwards…in other words, even people with a high budget, and budgets not affected, (devote) lower percentages to jewelry, things like that.”
Although the study doesn’t include data from the Great Recession, Wagner said the 2007-2009 recession was part of his impetus for wanting to understand how economic contractions and expansions effect consumer spending.
“The only thing I can anticipate (is), I would anticipate the effect would be much stronger,” Kamakura said of the recent recession of the recession. “This time, it affected our physical assets – our houses – and it also affected our financial assets.”
