Friday, October 26, 2012

An important point on home production, gender, and output

I'm just going to quote him or her in full:

"Not to mention the inherent problems with GDP. GDP doesn't mention home production, for instance. Since it's been largely the female side that has provided care in the household, switching them to the workplace would only superficially appear to be improving welfare. This isn't an argument that women should stay at home and work, since the same could easily go for men. (Which is largely happening. The spouse who makes the least amount of money has a tendency to watch after kids, take care of the house, etc., if one of them needs to, and men have had to take on this role more and more as the gender gap disappears.)

So, what would happen if we just shifted it around and put more women in the workplace? Less home production and any sort of production outside of GDP that women would be contributing to. Like Ryan says above, it could decrease welfare. That's assuming, of course, we have an optimal position and people are deciding that it would be utility maximizing for some to stay home and others to work. There very well could be inefficiencies there. This argument could go towards men as well. Since men have been absolving themselves from the workplace more and more since the 50's, I'm sure it would be easy to argue: "Why not convince men to stop leaving the workforce, so we can have male participation rates like the first half of the 20th century?" Men are leaving for a reason. For instance, men may not need to work and provide as much, since the workload can now be split between both spouses more easily. So perhaps they're trying to maximize utility between the two?

Long story short, I'm tired of people trying to use GDP as the end all be all measurement of happiness. We could probably do a lot of ridiculous things to raise GDP and a lot of them wouldn't make us any happier. Obviously, the article didn't mention any of this, so it's nothing against the article, but I imagine this is what many people would have inferred from it."

I agree with this very strongly on numerous levels. I've talked a lot on here before about the problems with over-interpreting GDP, and that GDP is not treated by a welfare measure by economists (it's usually journalists that bring that in), and nobody should take it that way. As far as I can tell we only care about GDP for one reason: output is income, and since production and employment are of necessity so closely tied together and since most Americans get their income from employment, we care a lot about whether GDP is off trend. But it's not welfare.

But let's put that point aside - the really important stuff here is about home production. Now I agree with the near universal decision by the national accounts people to exclude home production. That decision has been criticized at many points - most recently (to my knowledge) in the mid-90s. But the decision has been consistent and its the right decision because home production is not traded in the market so it doesn't really make sense to include it in accounts recording market exchanges.

That doesn't mean home production isn't a critical economic concept to consider. The national accounts people agree, in fact - the BEA has done some work with a historical home production account. The classic paper on time use and home production is Gronau (1977), with Becker and Mincer making early contributions as well. Nancy Folbre makes an important contribution in her theory of the misallocation of time, which brings in issues of positive externalities in home production. (Folbre blogs at Economix). Gronau's insights made their way into the labor supply literature, and a lot of what was learned was summarized  in Juster and Stafford's JEL article on the subject.

I am just jumping into this literature because I'm writing a paper on home production over the business cycle which highlights exactly the trade-offs that the commenter discussions. It's for class, although I'd hope to clean it up and submit somewhere afterwards. One of the empirical findings has been that home production does not increase during recessions (including the current one) in the way that theory predicts it should. Why? One explanation I'm exploring is that when non-labor income also falls, the amount of time dedicated to home production becomes ambiguous. If we take a permanent income hypothesis approach, the financial crisis and housing bust represented a large negative shock to non-labor income which could help to explain why home production doesn't substantially increase. I'm using the American Time Use Survey for this work.

There's a fair amount of micro/labor work on home production (although there could be more). It has made less of an impact on macroeconomics. The exception is actually a small literature by Real Business Cycle theorists that include home production decisions in their model. I haven't looked closely at these, but apparently they help a lot to improve the model fit. My gender micro class is this semester. Next semester I'll hopefully be doing gender macro and I'd like to look into these RBC models a little more (I'm not sure they're on the syllabus but I should be doing another paper for it).


  1. "If we take a permanent income hypothesis approach, the financial crisis and housing bust represented a large negative shock to non-labor income which could help to explain why home production doesn't substantially increase. I'm using the American Time Use Survey for this work."

    This is off-topic, but...have you done any research on James Duesenberry's "relative income hypothesis"? It appeared roughly around the same period when Milton Friedman made his "permanent income hypothesis". The relative income hypothesis may be better supported by empirical evidence than Milton Friedman's permanent income hypothesis.

    Now, going back to the issue of gender...wouldn't men and women be equally affected by changing consumption patterns? I'd suggest using a relative income hypothesis study in your paper Daniel Kuehn instead of the permanent income hypothesis, as the weight of evidence is growing in favour of James Duesenberry, not Milton Friedman.

  2. Glad you agreed with my comment! Can't wait to hear about your work, and thanks for the useful insights!


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