American Consumption Patterns and the Price of Time: A Time‐Series Analysis

American Consumption Patterns and the Price of Time: A Time-Series Analysis Over the past 30 years American consumption patterns have changed considerably; durables and services have increased their shares of total consumption while nondurables' share has diminished. In total, real personal consumption expenditures per household rose 1.4 percent each year from 1955 to 1984 (Table 1). The annual growth rate of durables consumption per household was 2.9 percent, almost double that of the total. The annual growth rate of services consumption of 1.9 percent was 36 percent greater than that of the total's rate. In contrast, nondurables consumption per household rose only .5 percent per year over this period. Since 1955 female wage rates have risen at the rate of 6.5 percent per year and male wage rates at 6.1 percent per year, while the prices of goods and services (as measured by the implicit price deflator for Personal Consumption Expenditures from the National Income and Product Accounts) rose only 4.8 percent annually. Decomposing this total price change, durables' prices rose at an annual rate of 3.2 percent, services prices at 5.1 percent, and nondurables prices at 4.9 percent per year. Real permanent income per household, however, had risen at the modest annual rate of 1.5 percent over the 30-year period (Table 1). In the latter part of the period--since 1973--price and wage rate increases accelerated while increases in real permanent income per household slowed greatly. To what extent are the changes in the pattern of American consumption due to the usual alterations in demands as income and the prices of durables, nondurables, and services have changed through time? What role have the rising prices of female and male time played? In particular, could the increase in durables and services consumption relative to nondurables have arisen, in large part, because Americans have attempted to find less time-intensive ways of conducting their household activities as their time became more expensive relative to goods and services? The theoretical role of the rising value of time in altering American consumption patterns has been discussed extensively by Linder (1970), but its empirical importance has not been documented. Both men and women spend significant amounts of time in household work (albeit females spend more), and the opportunity costs of this time are high. (1) If the opportunity cost of time rose relative to the prices of goods and services, households would have been induced to find ways of reducing their involvement in household work. Median annual full-time, full-year earnings of females, a measure of the opportunity cost of female time in the household, rose 35 percent more rapidly than the prices of goods and services over the 30-year period while that of men rose 27 percent faster than prices. (2) It would not be surprising then, if some of the changes in consumption patterns had been caused by the rising relative values of time. The statistical estimation of the roles that the prices of male and female time play in altering consumption patterns is the primary focus of this paper. The next section reviews the statistical literature that addresses the relationship between the opportunity cost of time and commodity demand and criticizes it in the present context. Models addressing the issue are then laid out in the third section. The fourth section discusses the data and measures used. The fifth section reports the statistical results, and the sixth section interprets them. The seventh section uses the statistical results to account for consumption trends in the past 30 years. The last section draws implications for the future. REVIEW OF LITERATURE There are two distinct and separate strands in the statistical literature on the role the value of time plays in determining consumption patterns, one cross section and the other time series. …