Written by: Victoria Valdivieso
The term “recession” connotes economic turmoil and thus a reduction in household spending; there is an increase in the consumption of inferior goods due to reduced income and economic expectations. Inferior goods, or “goods [that] experience a decline in demand when people begin to generate more income,” surge in demand during recessions, and often consist of groceries, transportation, and generic brand goods (Kenton, 2026). The business cycle model reflects these consequences by demonstrating that in a recession, potential gross domestic product (GDP) is higher than real GDP, creating a difference that quantifies the extent of the recession. In almost all markets, when real GDP decreases, individuals begin to substitute their normal and luxury goods with inferior goods; however, analyses have shown that the consumption of prestige lipstick, a luxury good at face-value, increases during recessionary gaps. The lipstick theory posits that prestige lipstick consumption can be used as a recessionary indicator, due to its use as a substitute in conspicuous consumption, and thus its ability to fulfill the psychological desires for conformity and recognition.
It is first important to understand why prestige lipstick, in comparison to other cosmetic goods, can be used as a recessionary indicator. In Juliet Schor’s book, The Overspent American, Schor observed that, “when money is tight, women splurge on luxury brand lipsticks that are used in public…and forgo higher-priced beauty products that are applied in the privacy of home…” (Danziger, 2022). In this way, consumers aim to showcase their status through the perceived luxuriousness of their lipstick, and “support a particular image of themselves to present to the world.” (Schor, 1997). The lipstick theory explains the psychological effects of purchasing a high-end lip product from a high-end store; by displaying the prestige lip product in public, the consumer’s confidence increases (Schor, 1997). Lipstick being used as a tool to portray wealth in public spaces, while privately used cosmetics are swapped from normal to inferior goods, is indicative of a recession because consumers are reducing the total amount of income spent on cosmetic products. By splurging on a singular cosmetic, the consumer attempts to convey their wealth, despite having had to decrease net spending on cosmetics.
Thus, the lipstick theory builds upon Veblen’s Theory of Conspicuous Consumption, which is defined as, “lavish or wasteful spending thought to enhance social prestige,” (Merriam-Webster, 2026). When consumers purchase a prestige lipstick solely to inflate their perceived wealth, and thus their social status, they participate in conspicuous consumption. When the purchase of the prestige lip product occurs in response to reduced real wealth, and thus tightened recessionary spending, the lipstick theory is demonstrated. “As consumers’ income falls, they will forgo big-ticket luxury good purchases that they can no longer afford and instead spend their (reduced) income on smaller luxury items,” (Hayes, 2026). Lipstick fulfills the consumer’s desire to portray their wealth and status to other individuals while simultaneously allowing the consumer to reduce their spending on other goods, keeping pace with falling incomes and GDP. Prestige lipstick acts as the substitute for other luxury goods that would constitute conspicuous consumption, given normal economic conditions. In this way, the psychological desire for social validation, by means of perceived wealth, takes the form of lipstick, which is quantifiably cheaper than jewelry, clothes, furniture, etc. Thus, lipstick can be likened to an inferior good, in which consumers tend to increase their demand during recessionary gaps.
It is evident that the lipstick theory relies heavily on an individual’s psychological desires for conformity and recognition, especially during recessionary gaps within the business cycle. The psychological aspects of the lipstick theory help explain why the substitution for conspicuous consumption is necessary. The need for conformity within society, “brought about either by a desire to ‘fit in’ or be liked (normative)…or simply to conform to a social role (identification),” (McLeod, 2023) helps individuals form groups within society. The “in-group” (that is, the group that conforms to societal standards) helps to “boost self-esteem and support social cohesion within the group,” whereas the “out-groups” “are seen as threats, driving division and conflict.” (Franco, 2024). When an individual selects a wealth group which they aspire to achieve, they conform to the standards pushed by that wealth group, including lavish and unnecessary purchases that help to distinguish the group’s perceived wealth. This includes excessive spending on cars, houses, fashion, cosmetics, etc., and is a form of conspicuous consumption. To be a part of the “in-group,” and thus satiate the individual’s desire to conform within society, the individual deems these purchases necessary. During a recession, in which income is reduced, the purchase of a prestige lipstick substitutes other lavish expenses which would otherwise establish the individual’s belonging to a certain wealth class. The lipstick itself allows the consumer to feel as though they still belong to the “in-group,” creating the façade of wealth despite the financial pressures of a recession. Additionally, by feeling as though they belong to a certain “in-group,” the consumer feels recognized, and thus validated, by society. The conspicuous consumption of prestige lipstick creates a sense of normalcy during recessionary gaps in GDP, as consumers feel that they still conform to their “in-group” in regard to wealth, and are recognized as such within society. The lipstick theory is thus a unique hypothesis that allows recessions to be indicated by the increase in purchases of prestige lipstick. The reduction in real income present during recessionary gaps in GDP creates an individual’s need to substitute their conspicuous consumption with a less expensive alternative: prestige lipstick. This substitution decreases the consumer’s total spending on cosmetics, but the prestige of the lipstick allows the consumer to fulfill their psychological desires for conformity and recognition in their “in-group.”
References
Kenton, W. (2026, April 4). Inferior goods: Definition, examples, and impact on consumer behavior. Investopedia. https://www.investopedia.com/terms/i/inferior-good.asp
Danziger, P. N. (2022, June 1). With recession threatening, the lipstick effect kicks in and Lipstick Sales Rise. https://www.forbes.com/sites/pamdanziger/2022/06/01/with-inflation-rising-the-lipstick-effect-kicks-in-and-lipstick-sales-rise/
Schor, J. B. (1997). The Overspent American. Basic Books.
Merriam-Webster. (2026, March 27). Conspicuous consumption definition & meaning. Merriam-Webster. https://www.merriam-webster.com/dictionary/conspicuous%20consumption
Hayes, A. (2026, February 26). Understanding the lipstick effect: A key economic indicator explained. https://www.investopedia.com/terms/l/lipstick-effect.asp
McLeod, S. (2023, June 15). What is conformity? definition, types, psychology research. Simply Psychology. https://www.simplypsychology.org/conformity.html Franco, F. (2024, October 15). In-group and out-group dynamics: A psychological perspective. Psychology Today. https://www.psychologytoday.com/us/blog/trauma-resilience-and-recovery/202410/in-group-and-out-group-dynamics-a-psychological