Home Production--A Forgotten Industry

Abstract

RECENT years have witnessed an awakened interest in the economic activity taking place outside the market, and in particular the activity taking place at home. This interest spurred by the new consumption theory of Becker and Lancaster and by the estimates of the Measure of Economic Welfare of Nordhaus and Tobin (1973) has taken two distinct forms: an increased number of studies on the economics of household behavior and a renewed effort to place a money value on the household home activity. However, while the major thrust of the first type of studies is in the field of microeconomics, the estimates of home production refer, in general, to the economy as a whole. These estimates, crude as they are, indicate that home production is far from being a negligible part of the economic activity. Even in an advanced economy such as the United States the value added generated by the home sector seems to account for over one third of the output produced at the market (Hawrylyshyn, 1976). In less advanced economies this fraction is presumably even higher. It seems, therefore, of interest to repeat the question in a microeconomic context and examine the role of home production at the household level, rather than in the aggregate. In contrast to past studies which have focused on the labor inputs going into home production (Sirageldin, 1969; Walker and Gauger, 1973), the emphasis in this paper is on the measurement of productivity and total home output. The questions I try to answer are: What are the factors determining the wife's productivity at home? What is the value of home production and how does it compare with the family's money income? How does the value of home production differ among families with different socioeconomic backgrounds? How is it affected by the wife's labor force participation and by the existence of young children? How does it change over the family's life cycle? It is found that the value of home production associated with the work at home of U.S. wives in 1973 exceeded 60% of the family's money income before taxes, and 70% of the family's money income after taxes. It was lower for families with no preschool children and almost equal to the family's money income after taxes when the family had young children. Home productivity increases with education but at a lower rate than market productivity. Home production is only slightly affected by the wife's employment in the market when the family does not have young children. However, when the family has young children, the loss of home output when the wife joins the labor force equals almost her increased money earnings. Finally, home production tends to peak at a younger age (35-39) than money income and drops significantly thereafter. The paper opens with a discussion of the estimation of household productivity-the model, the data and the estimates. The role home output plays in comparison with other material resources is discussed in section III. The paper closes with some concluding remarks.