Individuals' motivation structures are influenced by their social status, which is a social reward. More people will get an education if qualified people are given status. The social status associated with various occupations influences the choice of profession, establishing a connection between social status, the equal wage structure, and worker allocation among occupations. People attempt to indicate their statuses by modifying their consumption choices or behaviour when not explicitly observed. The Homo Economicus theory should be expanded to include social status as one of the fundamental reasons for economic decisions.
People are social beings that are concerned about their social status and what other people think of them. To put it another way, people care for their 'prestige' or the 'respect' they get from the people they communicate with. Many citizens would happily pay a hefty amount for the honour of being knighted.
Similarly, the Nobel Prize's worth is not solely based on the monetary award; we should not be surprised if many people are willing to pay to receive it. These findings on human behaviour are not recent. For example, Hobbes wrote, "Men are constantly in competition for honour and integrity." (Hirschman, 1973, p. 634).
While conventional economics has focused on monetary incentives shared through a market system, sociologists have highlighted social status and other social rewards as significant motivators. Max Weber coined the word "social status" to describe "an important claim to social esteem in terms of negative or positive rights." (Weber, 1922, p. 305).
The type of rewards that societies offer to their members is an essential factor that distinguishes societies and determines their success. In general, three types of incentives exist:
Private monetary rewards, such as salaries and profits
Social rewards, such as rank and prestige
Rules, laws, and regulations that enforce some types of behaviour while penalising others
The rewards and rules that different societies use can differ. This concoction has a substantial impact on economic growth. Individuals' social status is, therefore, a part of the incentive system of any society. An individuals' actions, occupations, education levels, and other factors are influenced by these rewards. Therefore, they have a significant economic impact (see also Weiss and Fershtman, 1998). Prizes, knighthoods, and other status symbols would lose value if sold like any other product. A badge, decoration, or title would have no merit if many people can obtain it. Hence, the value of status symbols is determined by the allocation rule that decides who is entitled to obtain a particular symbol, who is not, and the number of symbols available. This characteristic separates social status from financial gain. Giving a medal to one person can reduce the value of the medal for another. Thus, social status can be described as an individual's or a group's place in society. Personal characteristics, actions, professions, or group affiliations can be used to rate people. However, by definition, if someone climbs up in ransom, they are committing a crime.
Only when people agree on how ranking is determined does social status matter. For social status to matter, a society's members must all agree on their relative positions. Social status is based on collective judgement, or rather a plurality of opinions within a community, which is crucial. No one person can confer status on another by themselves, and if a man's social status were judged differently by anyone he met, he would have no social status at all.' (p. 198 in Marshall, 1977). The position of social status in a multicultural society where each community retains its ranking, each of which may be influenced by different factors, is an intriguing – and largely unexplored – subject. Fershtman, Hvide, and Weiss (2005) demonstrated that benefits from (social) exchange could be converted into higher production and wages in a culturally diverse society.
The various categories that make up social status are numerous. The terms "status category" and "individual status" are distinct. In the first category, defined by Weber, social status is attained by membership in an association, such as a social class, occupation, or club. The status group's members all have the same status. Person characteristics or behaviours are used to determine social status in the second group. It is also essential to differentiate between status earned through specific behaviour or community membership and status inherited. (Being born into an aristocratic family will confer social status.) Therefore, the mechanism for achieving and retaining status is crucial in assessing its economic impact. One of the most challenging aspects of integrating social status into economic models is that it cannot be observed directly.
Now, what criteria do we use to determine our status?
How do we decide what rank is relevant and what is not?
What factors influence social standing in various societies?
Identification of the variables that affect social status is another task required for modelling. The agreed approach for answering these questions has been to conduct surveys. People are asked to rate occupations according to their 'prestige' or tell which attributes affect an individual's social status. Furthermore, occupational attributes are systematically based on status rank; occupations that require a high level of education and pay well often grant high social status.
Economists are baffled by the wide variation in growth across various economies. While most of the literature explains the phenomenon in terms of economics, others argue that cultural influences are to be blamed for the variances. Individuals' choices of occupation, investment, and education are all influenced by social status. For example, it had been suggested that in 19th-century England, that disdain for entrepreneurs and the high status of the idle gentleman were the primary causes of the country's economic decline (see Wiener, 1981). Externalities associated with human capital or certain professions are a popular feature in recent growth models. When certain behaviours or professions are associated with social status, it can be viewed as a corrective mechanism.
In contrast to 'productive' activities, Baumol (1990) emphasises the importance of social standing or prestige associated with non-productive (rent-seeking) activities. The consequences are straightforward: A status system that rewards 'productive' behaviours with higher status is conducive to growth. However, status is a social construct that can be decided endogenously by the people who choose occupations or careers. As a result, the desire for prestige can be counterproductive, resulting in an inefficient distribution of talent across different occupations. A significant focus on status may encourage the 'wrong' people – those with low skill but much money – to choose a 'productive' occupation or go to school, forcing workers with high ability but little money to quit growth-enhancing jobs.
The inclusion of status expectations as a "hard-wired" component of the utility mechanism raises the question of why people have entrenched social status preferences. One solution to dealing with this issue, which is popular in economics, is to avoid preference creation. Social biologists have taken a new approach. They claim that human actors' emotions and social issues are hard-wired, and concerns that improve health are more natural. Fershtman and Weiss (1998a; 1998b) used an evolutionary perspective to demonstrate that social status concerns can be part of healthy evolutionary preferences.