An Input-Output Approach to Valuing Non-Market Household Time

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). …