An input-output approach to valuing non-market household time.

• Author: Pratt, James E.
• Position: Report

Abstract

Unpaid household production is unmeasured, unvalued and unseen in most economic policy studies. Family care work receives even less attention in economic policy and planning. However, unpaid household time and outputs are critical to the well-being of our economy. Historically, arguments against counting the economic contributions of household labor resulted from the difficulties of measuring and valuing non-market outputs. I demonstrate an economic model that combines unpaid family care activities and labor market participation within an Input-Output (I/O) framework to allow valuation of household care activities. Using the duality between time allocation and valuation 1 determine implicit values of unpaid household production time in the same metric used in the I/O flows accounts, namely, the transactions-baser GDP denominated monetary flows. This creates improved opportunities for economic assessments of policy impacts on both household and market labor.

Introduction

Parents use a combination of both paid (market) and unpaid household (non-market) care as they balance their roles as care givers, workers, and parents. However, economic analyses typically focus on market forms of care and exclude attention to non-market household production. This paper addresses that omission.

The failure of economic accounts to value household production is not limited to child care. Our National Income and Product Accounts (NIPA), on which estimates of Gross Domestic Product are based, do not include measures for non-market household production. The research reported in this paper bridges the gap between national accounts and non-market household production activities. This bridging is particularly important to understanding the linkage between child care and economic development.

This paper presents a method for valuing both market and non-market household activities in a comprehensive economic framework. It uses the economic value data from the NIPA, supplemented by physical data on time use from the American Time Use Survey (ATUS). First, I review the historical and conceptual bases used in measuring the economy. Next, I discuss the challenges of measuring the economic value of non-market household activities. I then review the concept of duality, which enables economists to infer value from information about production. In the Appendix, I present a simple numerical demonstration using mathematical optimization of input-output accounts with hypothetical time use constraints to compute "dual", or "shadow", values for non-market household time. The advantages of this implicit approach are that values are denominated in Gross Domestic Product (GDP) dollars and that no assignment of a wage rate to non-market time is required. I conclude with implications for policy of having measures that include both the market and non-market sectors of the economy.

Transactions and National Income Accounts

Partially in response to the uncertainty precipitated by the stock market crash of 1929 and the beginnings of the Great Depression, the U.S. Congress commissioned Simon Kuznets of Columbia University to construct guidelines and procedures for measuring aggregate economic activity in the U.S. In his transmittal letter to the Senate Kuznets (1934) outlined the procedures that eventually became the foundation for producing the well-known measure of Gross National Product (GNP) and GDP. (Kuznets received a Nobel prize in economics in 1971.) Being an economist of the time, Kuznets relied on the principle of double-entry bookkeeping to suggest that 'market transactions', where there are buyers, sellers, and observable transactions prices, be the fundamental building blocks for the NIPA. This underlying 'market transactions principle' (Ruggles and Ruggles 1982, Reich 1991, 2001) continues to be codified into the widely accepted United Nations System of National Accounts (SNA) which is used by over 160 of the world's countries to do national accounting (United Nations Statistics Division 2004).

The transactions principle used in establishing national accounts leaves little room for including the value of commodities or services that occur outside of a market. Some transactions outside the market place are included in NIPA, such as services provided by government, as are some values that are not market transactions, such as the value of owner-occupied housing. The value of unpaid household production is, however, excluded. Since their inception in 1934, the national income accounts of the U.S. have omitted from their estimates of GDP any value for activities performed within households by nonfarm family members. 'Nonmarket' household production activities include such things as in-home meal preparation, laundry, house cleaning, and family care. Various estimates of the total increase of GDP value due to nonmarket production range from 12% to 80%, with most being in the 40%-60% range (Bryant et al. 1992, Hamdad 2003, Ironmonger 2001, Landefeld and McCulla 2000, Landefeld et.al 2005, Trewin 2000, Zick and Bryant 1983, 1990). Historically, the value of household production was omitted because it took place outside of a market and had no 'observable' transaction to be recorded, i.e. it is 'uncountable'. Additionally, consistent with the assumption that households are exclusively consumers rather than producers of economic goods and services, no estimates were made of the annualized value of durable goods used in household production, though there is the one exception of owner occupied houses.

Arguments against counting the economic contributions of household labor are deeply rooted in NIPA and this particular omission did not go unnoticed or unchallenged by household economists of the time (Reid 1934). Nor did the fact that, from the beginning, a major exception to the transactions principle was made by including in the national income accounts an imputed value for owner-occupied housing, also raising questions about the propriety of, or even the motivations for, omitting the majority of unpaid household production from the national accounts. There are sound theoretical reasons why unpaid non-market activities should not be included in the transactions-based national accounts (Reich 1991, 2001), but at the time of their inception, there was also an explicit determination that productive activities of housewives were not economic processes, i.e. 'they do not count'. (2) These national income accounting rules were presumed to be a set of coldly objective accounting principles. Today, it is recognized that the SNA is much more than a set of sterile rules. "National Accounts reflect underlying ideologies and paradigms. National Accounts construct realities, they do not simply represent them." (Cooper and Thompson 2000, p. 27)

Valuing Household Activities in Economic Analysis

"Economic theories have, for a long time, shown no interest in the productive function of the family. It has always been studied as a consumption unit." (Archambault 1987, p. 47) Bringing households into the mainstream of broader economic analysis is a relatively recent occurrence (Becker 1965, 1981 and Lancaster 1971). The areas of consumer choice and the work/leisure trade-off led the way. More recently, the articulation of a more general theory of household production has emerged. Obviously, households are the source of labor, an important factor of production for most market production. Unpaid household production arguably competes strongly with the visible, market transactions denominated, sectors of the economy, because many of these unpaid household production activities are time intensive.

Because the majority of household production was and continues to be provided by women, feminist economists (Folbre 1994, Himmelwait 1995) have led the effort to have this form of production 'counted', and have been joined by a wider range of consumer and household economists as well (Bryant et. al. 1992, Ironmonger 1989, 1996). "The recent contribution of the new 'home economics' school as well as of the feminist scholars is the recognition that production continues to take place in the home, as an aspect of consumption". (Silver 1987, p. 41) Based on research and dialogue, national income economists have suggested the creation of 'satellite' accounts for use in valuing non-market household production (Landefeld et. al. 2005, Trewin 2000). These accounts are 'based-on' the NIPA and allow for the formal imputation of a large and important component of national 'well being', while maintaining the transactional integrity of the national income accounts.

When imputing a value to non-market household time, the determination of the subset of possible activities to be considered is the first problem encountered. Most attempts have started with the presumption that only 'work' activities should be valued. Early on in the debate, Margaret Reid (Reid 1934) provided insight with her proposal of the 'third-person criterion', whereby she suggested that the distinction between unpaid work and non-work be whether or not a third person could be paid to do the unpaid activity in question. You could pay a third person to prepare a meal for you, but not to eat, and presumably enjoy, it for you. More recently, the definition of work, when used in a dichotomy of work/non-work, has been challenged (Himmelweit 1995). The 'personal relationships' and 'familial values' nature of caring labor, whether provided in the home or in the market (Folbre 2001), has been recognized, highlighting further difficulties in trying to value unpaid household productive activities involving care for family members or persons close to the caregiver. The method reported below could, but need not...