Diverging identities: a model of class formation

Blavatnik School of Government working paper
Abstract

This paper is an application of 'identity economics' to the social polarisation between ‘Somewhere’ people and ‘Anywhere’ people posited by David Goodhart, and revealed in the votes for Brexit and Donald Trump.

In a simple model, people rationally maximise their utility from esteem, by selecting a subjective salient identity which gears up the esteem generated by their choice from one of two objective identities: place and job. But as well as gearing up the esteem from the chosen identity, if people make different choices of salience this becomes a new attribute that divides the society.

The model shows how an increase in wages for the upper half of the population can lead those with high incomes to switch from place to job as their salient identity. This rational switch in their choice of salience reduces aggregate utility and generates regressive transfers.