Individuals' motivation structures are influenced by their social status, which is a social reward. More people would get an education if qualified people are given status. The social status associated with various occupations influences the choice of occupation, establishing a connection between social status, the equilibrium wage structure, and worker allocation among occupations. People attempt to indicate their status by modifying their consumption choices, or behaviour. The homo economicus narrow 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 in 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; as a result, we should not be surprised if 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." (cited in 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 term "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 one of the important factors that distinguish societies and determine their growth and success. In general, three types of incentives exist:
➔ private monetary rewards such as salaries and profits;
➔ social rewards such as rank and prestige; and
➔ rules, laws, and regulations that enforce some types of behaviour while penalising others.
This concoction has a substantial impact on economic growth. Individuals' social status is, therefore, a part of the incentive system of any society. Individuals' actions, occupations, education levels, and other factors are influenced by these rewards. As a result, they have a major economic impact (see also Weiss and Fershtman, 1998). Prizes, knighthoods, and other status symbols would lose value if they were sold like any other product. A badge, decoration, or title would have no merit if it can be obtained by a large number of people.
As a result, the value of status symbols is determined by the allocation rule that decides who is entitled to obtain a particular symbol and who is not and the number (and certitude) 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. As a result, 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 it matters. For social status to matter, a society's members must all agree on their relative positions. The fact that social status is based on collective judgement, or rather a plurality of opinion within a community, is crucial. No one person can confer status on another by themselves, and if a man's social status was 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 in 2005 demonstrated that benefits from (social) exchange can be converted into higher production and wages in a culturally diverse society.
The various categories that make up social status are intriguing. 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. Personal characteristics or behaviours are used to determine social status in the second group.
It is also important to differentiate between status earned through specific behaviour or community membership, and status inherited. Simply being born into an aristocratic family will confer social status. As a result, the mechanism for achieving and retaining status is crucial in assessing its economic impact. One of the most difficult aspects of integrating social status into economic models is that it cannot be observed directly. What criteria do we use to determine our status? How do we decide the ranking that decides who is considered relevant and who is not? And how can we put a number on it?
Identification of the variables that affect social status is another task required for modelling. What factors influence social standing in various societies? The agreed approach for answering these questions has been to conduct surveys in which people are asked to rate occupations according to their ‘prestige' or to state which of the individual's attributes affects his or her social status. Furthermore, occupational attributes are systematically based on status rank; that is, 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 the majority of the literature explains the phenomenon in terms of economics, others argue that cultural influences are to blame for some of the variances. Individuals' choices of occupation, investment, and education are all influenced by social status. For example, it has been suggested that in 19th-century England, 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 deciding on his or her level of education, each worker must consider the following factors. 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 social 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 could be counterproductive, resulting in an inefficient distribution of talent across different occupations. A large focus on status may encourage the ‘wrong' people – those with low skill but a lot of 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 (or other animals) have entrenched social status preferences. One solution to dealing with the issue, which is popular in economics, is to avoid dealing with preference creation. A new approach has been taken by social biologists. Fershtman and Weiss (1998a; 1998b) used an evolutionary perspective to demonstrate that social status concerns can be part of healthy evolutionary preferences. They claim that human actors' emotions and social issues are hard-wired and that concerns that improve health are more natural.