Week 5 Discussion: Valuing household work

1414 unread replies.1414 replies.

In developed countries, the value of household work is generally not included in GDP. Part of the reason is that there is no universally agreed upon method to value housework. The two most commonly used methods are:

1. Opportunity cost approach: value tasks at the opportunity cost of the person doing them.
2. Market cost approach: value tasks at the market rate you would pay to have them done by an outside.
   • Additionally there are two methods for estimating market cost. One method suggests using the cost of hiring a specialist for each job. The other suggests using the hourly wage of a more general household worker.

In this week's discussion I ask you to reflect on the different methods of valuing housework. Please read 8th ed, CH 4 pg. 77-81[7th edition: pg. 67 - 71] before responding.

What are the strengths and weaknesses of each approach? In your opinion, which method is more reasonable? Justify your answer. Feel free to suggest another approach that you feel is more reasonable than either of the two conventional approaches. (A full credit response will indicate a clear understanding of both methods)

Chapter 4 I The Family as an Economic Unit: Evidence 67 at a food pantry to serving as a board member." Figures would be quite a bit higher if more informal volunteer activities, such as those described earlier, were included. These data indicate that 27 percent of all adults volunteered for a formal organization. A notable gender difference seen in the table is that women volunteer at higher rates than men. In 2011, the rates were 30 percent for Women and nearly 24 percent for men. This gender difference is true across all race and ethnicity and education groups shown in the table. Part of the explanation for this difference is that women are more likely to be part-time workers, a group with a much higher volunteer rate, though notably, even women who are employed full time volunteer at a somewhat higher rate than their male counterparts. Women and men also tend to differ in the kinds of volunteer Work they do. Women contribute more time to health organizations and educational institutions, while men do more voluntary work for civic and political, as well as sport and recreational orga- nizations. There are, however, no substantial differences in the proportions of women and men involved in social welfare organizations and religious institutions.u As may be seen in the table, rates of volunteerism also differ by race and eth- nicity. In 2011, the participation rate in volunteer work for the population as a whole was 27 percent, while it was only 20 percent for African Americans and 15 percent for Hispanics. The lower figures for these groups are likely explained by the fact that volunteerism is greater, on average, for more highly educated and for hi gher-income individuals. For example, as may be seen in the table, the participation rate for volun- teer work was 42 percent for college graduates, considerably higher than the rate of 10 percent for those with less than high school. An important question is whether, and to what extent, rates of volunteerism or time spent in volunteer activities decreased with women's entry into the labor force. Regrettably, consistent data are not available to assess long-ten'n trends in volunteer- ing. However, it is quite telling that, as we have seen, even women who are employed full time participate in volunteer activities at higher rates than men. Also, it should be kept in mind that, to the extent there has been any reduction, women's increased earn ings increase their capacity to donate money to worthy causes in place of their time. ESTIMATING THE VALUE OF NONMARKET PRODUCTION Unpaid activities like housework and athome child care are valuable to households and to the larger society. At present, however, these contributions are not included in US. gross domestic product (GDP). GDP is the total money value of all the goods and services produced by factors of production within a country over a one-year period. The consequences of the omission of nonmarket production from GDP are potentially serious. For instance, comparisons of GDP between countries are distorted to the extent that the relative sizes of household and market sectors differ. Further, within a country, the growth in GDP is overstated if women reduce home production as they work more in the labor market, as has been the case in the United States.\" Related to the concept "Data on volunteering are also available from the American Time Use Survey (ATUS) conducted by the Bureau of Labor Statistics and can be found on its website, ti'lUTt'J'ligt'lll. '3\"A Vast Empirical Record Refutes the Idea of Civic Decline," Special Issue of Plll'fft' Perspective 7. no. 4 (June/July 19%),- and Stephanie Borass, "Volunteerism in the United States," Monthly Litter Rm'icu' Ila. no. it (August 2003): 3-\". uThese distortions have been recognized for some time. For instance, in I'll-to, A. L'. Piguu uhsen ed that the services rendered by women enter into the dividend lHritain's measure of GDP." the time] when they are rendered in exchange for wages but do not enter into it when they are rendered by mothers or wives Thus, it a man married his housekeeper or his cmk, the national dividend is diminished.\" This quote is cited in Statistics Canada, 'Houselmlds' Unpaid Work: Measurement and Valuation," Studies in Ntllttltlulf r'tcmmttmg [December I995}, p. 3, Fur empirical evidence on the implications for married couples, see Christopher l'lUlL'itf, John Laitner, Dmitriv Stolurtw, *Wahiing Inst Home Pmeluction of Dual Earner Couples," Inl't'rrullt'erurl Economic 1'k1t'49, no. I [May Zti): 701430. ' - - - s ._ 68 Part II . The Allocation of Time between the Household and the Labor Market of an expanded measure of GDP, economists have also sought to develop a more com Prehensive measure of family well-being that not only takes into account money in come, but also incorporates the value of goods and services produced in the household Such a measure could provide a more complete picture regarding the degree of incond- inequality across families, both at a point in time and over time." Estimating the value of nonmarket activities, and ultimately including this value in GDP, poses a number of challenges. Many of these difficulties are well kno forensic economists-economists called upon to estimate the value of lost househoto services in court cases involving wrongful death and permanent injury. Such estimated were needed in the aftermath of September 11, 2001, as discussed in a subsequent inser One problem, the lack of an ongoing national U.S. time use survey, was surmounted in 2003, with the initiation of the Bureau of Labor Statistics American Time Use Survey However, a number of measurement difficulties remain. For one, there is the issue : what nonmarket activities should be included in an augmented measure of GDP. As the earlier example, should taking a walk with children be counted fully as nonmarket work, or is it partly leisure? Second, and perhaps even more challenging, is the lack of agreement regarding the preferable method of placing a value on nonmarket a ties. " There are two fundamentally different methods, each with its own advantages and drawbacks: the opportunity cost approach and the market cost approach. Economists, for the most part, tend to use the opportunity cost approach, which sets the value of unpaid work equal to the income the person could have earned in the labor market. It meshes well with the theory of labor supply, which will be discussed in detail in Chapter 6, in which individuals who participate in the labor force equate the value of an hour of nonmarket time to the market wage rate. For individuals who do not participate in the labor market, the value of nonmarket time must be at least as great as their potential market wage. However, despite its theoretical appeal, a number of difficulties arise with this approach. First, there is the nontrivial problem of estimating potential market earnings for those who are out of the labor force. Second, although the market wage is known for those who are employed, the presumption that it accurately represents the value of nonmarket time may not be correct. Many workers do not have the option of working precisely as long as they wish but must work a specified number of hours or forgo an otherwise desirable job. Hence, they may not be able to divide their time so that the value of the last hour spent at home is exactly equal to their wage rate. In addition to these problems, although correct application of the opportunity cost approach may identify the value of the nonmarket production to individuals and their families, it results in a higher value being placed on the nonmarket production of those whose market productivity is higher. So, for example, an hour spent scrubbing floors by a college graduate is valued more highly (at the value of her foregone market output, her wage) than an hour spent by a high school graduate in the same activity, even when they both do the task equally well. The main alternative to the opportunity cost approach is the market cost approach, which sets the value of nonmarket production equal to the cost of hiring someone to do it. One way to estimate market cost is to first determine how much time is spent on each specific activity and then to use the wages of specialists such as cooks, home decora- tors, chauffeurs, and even child psychologists to estimate the value of nonmarket time. "Harley Frazis and Jay Stewart, "How Does Household Production Affect Measured Income Inequality?" Journal of Population Economics 24 (2011): 3-22. "See National Research Council, Beyond the Market: Designing Nonmarket Accounts for the United States (Washington, DC: National Academies Press, 2005); and Nancy Folbre, Valuing Children (Cambridge, MA: Harvard University Press, 2008), Chapter 7.Chapter 4 . The Family as an Economic Unit: Evidence 69 This is often referred to as the specialist method. One concern about this method is that it is unlikely that a typical homemaker can perform all these skills as competently as a specialist. For this reason, a report by the National Research Council recommends using this approach with adjustments for quality differences.* A simpler alternative is to value unpaid home work at the wage of a housekeeper. Regardless of the specific market-based measure, a common criticism is that this alternative fails to capture the value of "personal and emotional care" in much nonmarket work, such as caring for one's own children, thus yielding values of nonmarket work that are too low." Despite all these difficulties, some preliminary efforts have been made in the United States to adjust standard GDP for nonmarket work. One study found that by ignoring nonmarket output, U.S. GDP for 2004 was underestimated by 20 percent us- ing the National Research Council's recommended quality-adjusted specialist method and by as much as 60 percent using the opportunity cost approach. Estimates of GDP that include the value of nonmarket output could be used to supplement existing data on GDP, or GDP could even be redefined to include the value of unpaid work, though this would raise comparability issues with past GDP data. Finally, another question that remains is whether including the value of non- market work in GDP would affect the status of women as a group. Some argue that the exclusion of unpaid work from GDP brands it as "unproductive." In this view, assigning a money value to housework would improve women's status because it would increase recognition for the activities of women in the home and validate their economic contributions." Others dispute this contention and believe that the inclusion of housework in GDP would not fundamentally affect the status of women because it would neither make housewives economically independent nor raise the wages of women who perform these services for pay. Looking to the future, given that other economically advanced countries are estimate ing adjusted measures of GDP (along with the standard measure), it is likely that the United States will continue to explore alternative approaches. In light of the many methodological challenges, however, it may be some time before a standard method is widely accepted. THE SEPTEMBER 11TH VICTIM COMPENSATION FUND OF 2001: JUST COMPENSATION? The terrorist attacks that occurred in the United States on September 11, 2001, took the lives of a diverse cross section of individuals: U.S. citizens and noncitizens; males and females; old and young; spouses, significant others, parents, and children; food workers, investment bankers, flight crews, and nonemployed persons. In some instances, more than National Research Council, Beyond the Market. "Nancy Folbre and Julie A. Nelson emphasize that some nonmarket work has a caring component. "For Love or Money-Or Both?" Journal of Economic Perspectives 14, no. 4 (Fall 2000): 123-40. See also Nancy Folbre, For Love and Money (Cambridge, MA: Russell Sage Foundation, 2012), Chapter 5. "Figures for the United States are from J. Steven Landefeld, Barbara M. Fraumeni, and Cindy M. Vojtech, "Accounting for Nonmarket Production: A Prototype Satellite Account Using the American Time Use Sur- vey," Review of Income and Wealth 55, no. 2 (June 2009): 205-25, Table 6. "See Susan Himmelweit, "The Discovery of 'Unpaid Work': The Social Consequences of the Expansion of "Work,"" Feminist Economics 1, no. 2 (Summer 1995): 1-19; and Nancy Folbre, Who Pays for the Kids? Gender and the Structures of Constraint (London: Routledge, 1994). "Barbara R. Bergmann, "The Economic Risks of Being a Housewife," American Economic Review 71, no. 2 (May 1981): 81-86.70 Part II . The Allocation of Time between the Household and the Labor Market one family member was killed. In the wake of the attacks, Congress set up a special film called the September 1 1th Victim Compensation Fund of 2001 to provide some megund of financial compensation for the families of the victims. Those who accepted awards fure the Fund had to agree not to sue the airlines involved or the U.S; government. The from government appointed a "Special Master" to be in charge of the disbursement of monia He faced the difficult task of deciding how much compensation each family would reches. Within the guidelines specified by Congress. The final ruling by the Special Master could not be disputed. Families were eligible to receive monies for the loss of their loved ones independent of economic considerations (to reflect the loss of enjoyment of life and to con pensate for the pain and suffering their loved ones experienced during the attacks). Thm were also to be compensated for the "presumed economic loss of their loved ones, which is the focus here. The Final Rules, promulgated March 13, 2002, reflect input from a wich array of groups, including the National Organization for Women (NOW) Legal Deferde and Education Fund.* In the Victim Compensation Fund, economic loss was computed as lost income and ben efits less consumption expenditures. For those who were employed at the time of the attach income loss was calculated as lost future earnings potential. That is, how much they would have earned, given their recent earnings stream, if they had been employed until the of their projected work life. Early on, when the Fund's rules were first set forth, the value of household work was not counted as lost income for full time workers, while it was estimated at "replacement value" for homemakers and part-time workers. As noted in NOW's 's memo to the Special Master, excluding the value of household services for full time workers seri- ously understates women's economic contribution because many women who work full time for pay also work a "second shift" when they get home: They make dinner and clean up, do laundry, and take care of their children's needs. Men who work full time also do some housework, but as we have seen, they spend far less time on it than women. The Final Rules gave the Special Master the discretion to include the value of lost household services for full time workers as well. The replacement value of lost household services was calculated using information on average weekly hours for specific activities, valued at commercial wages." This value is likely a lower bound of lost services because it does not adequately reward the "managerial" function that many wives and mothers provide. *** Further, family members of fer more than just household labor; as discussed in the text, their services include a "caring" component that cannot be readily quantified. Another concern raised in the NOW memo was that the income loss for women workers was based on their lost earnings, which may be too low as a result of gender discrimination The Final Rules did not make a specific adjustment for women's earnings in this regard, nor is this adjustment presently made in tort litigation involving wrongful death or permanent in jury. However, in the Final Rules, estimates of men's average work life were used in calculat ing women's as well as men's economic loss. Because men's average work life estimates are longer than women's, this factor should work to many women's advantage. In addition, to the extent that women's lower earnings are the result of greater time and effort in household activities, the inclusion of household services in the economic loss estimate addresses this concern to some extent. Apart from issues of gender equity, other equity concerns have been raised about the methodology used by the Victim Compensation Fund. For instance, the use of labor mar ket earnings to estimate economic loss has made many uncomfortable because this method conferred substantially higher awards to families of high-level executives than to those work- ing in lower-level positions (though both received identical compensation for noneconomic losses). Indeed, total awards varied from $250,000 to $6 million, principally as a result of differences in estimates of economic loss. However, it should be noted that the approach fo lowed by the Fund in this regard is quite standard in other cases in which an economic value is placed on loss of life or injury. * * * * Some concern also focuses on the difficulties that long-term unmarried partners, whether opposite sex or same sex, faced in obtaining awards from the Fund. State law determinedChapter 4 . The Family as an Economic Unit: Evidence 71 who could seek compensation for the loss of a loved one. In 2003, the lesbian partner of one September 1 1th victim received monies from the Fund, so at least some precedent was set, but other unmarried partners may have been deterred by the considerably lengthier hearings process required, or by the publicity. *** * * This discussion of the compensation awarded to the families of the victims of September 1 1th points to the fact that issues related to valuing housework have important practical ap- plications. It also highlights the considerable challenges faced by those charged with the task of estimating such values. This inset draws on Kenneth R. Feinberg, Camille S. Biros, Jordana Harris Feldman, Deborah E. Greenspan, and Jacqueline E. Zinns, Final Report of the Special Master for the September 1 1th Victim Compensation Fund of 2001 (Washington, DC: United States Department of Justice, 2004); and Memo from NOW Legal Defense and Education Fund to Mr. Kenneth Feinberg (February 1 1, 2002). "Feinberg et al. Final Report, footnote 123. ***Thomas R. Ireland, "Economic Loss in the Case of a Full time Mother and Homemaker: When Lost Services Are the Only Pecuniary Loss," Assessing Family Loss in Wrongful Death Litigation: The Special Roles of Lost Services and Personal Consumption, edited by Thomas R. Ireland and Thomas O. Dep- perschmidt (Tucson, AZ: Lawyers & Judges Publishing Co., 1999); and Anne E. Winkler and Thomas R. Ireland, "Time Spent in Household Management: Measurement and Implications," Journal of Family and Economic Issues (September 2009). ****Figure is from "Judge Affirms 9/1 1 Fund; Finds Award Process Is Fair," Newsday, May 9, 2003. See also Steven Brill, "A Tragic Calculus," Newsweek, December 31, 2001, p. 28; and Thomas R. Ireland and John O. Ward, Assessing Damages in Injuries and Deaths of Minor Children (Tucson, AZ: lawyers & Judges Publishing Co., 2001). *****"U.S. Awards Lesbian 9/1 1 Compensation for Loss of Partner," Washington Post, January 23, 2003. See also Jennifer Barrett, "Shut Out," Newsweek, February 15, 2002. THE AMERICAN FAMILY IN THE TWENTY-FIRST CENTURY Although this chapter has focused primarily on married-couple families, it is important to discuss to what extent this type of family is still dominant in the United States, to what extent even this type of family has changed in recent decades, and what the increasingly common alternatives to married-couple families are." The changes that have occurred in the United States did not happen in isolation, but rather occurred as part of a wave of similar changes in other economically advanced nations. Here we provide an overview of the developments in the United States, with a more detailed examination reserved for Chapter 13, and some discussion of trends in other countries for Chapters 17 and 18. The most fundamental shift in the family in recent years relates to what has been termed a "retreat" from marriage.* Marriage rates have fallen considerably, from 10.6 marriages per 1,000 population in 1970 to 6.8 in 2010, alongside an increase in unmar- ried, opposite-sex couples, often termed cohabitors. As of 2010, 50 percent of women between the ages of 15 and 44 had cohabited with a person of the opposite sex at some time in their lives." In addition, the once strong link between marriage and childbearing "Who should be defined as a family is increasingly complex. Teresa J. Rothausen argues that the current notion of "family" may be biased toward a "white middle-class" reality in " 'Family' in Organizational Research: A Review and Comparison of Definitions and Measures," Journal of Organizational Behavior 20, no. 6 (November 1999): 817-36. "For further discussion and evidence, see Andrew J. Cherlin, "Demographic Trends in the United States: A Review of Research in the 2000s," Journal of Marriage and the Family 72 (June 2010): 403-19. "Figure for marriage is from Table 13-1 of this text. Figure for cohabiting is from Centers for Disease Con- trol and Prevention, Key Statistics from the National Survey of Family Growth, "Percent of Women 15-44 Years of Age Who Have Ever Cohabited with a Male Partner," 2006-2010 at http://www.cdc.govchssfg/abc_list_a him, accessed November 26, 2012