Capital-Labor Substitution in the Home

Abstract

The household has always used female labor in the production of goods and services it consumes and uses, but during the 20th century the market for female labor changed considerably. As the market demand for female labor rose, the market wage rose too. In the household this simultaneously increased the price of labor in homes that could afford domestic servants and,increased the implicit cost of housewives' own time. These effects together created an incentive to increase the productivity of labor used in the home. When a new technology is added to a production process for use by labor, the laborer is able to produce more output for each unit of effort. This raises the measurable productivity of labor. By increasing the level of technology used in the home, the increasingly scarce and expensive female labor could produce more output. Hence there was an incentive in any household production process to shift toward capital. Simultaneously during the 20th century, there was a burgeoning of small capital-goods industries as the North American market economy grew. This was the era of mechanization and electrification, when production processes originally done by hand were changed to make use of capital goods. Domestic goods increased in complexity and capability over many decades, which caused a continuous adjustment in the production processes in the home. Not only were the relative prices and productivities of labor and capital changing, but real incomes were rising too. This increased each household's ability to acquire the new goods. The shift to increased capital usage was a response to changing economic conditions of relative prices and income constraints within the home.