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The Theory of Home Production: The Past Ten Years Author(s): Reuben Gronau Source: Journal of Labor Economics, Vol. 15, No. 2 (Apr., 1997), pp. 197-205 Published by: The University of Chicago Press on behalf of the Society of Labor Economists and the NORC at the University of Chicago Stable URL: http://www.jstor.org/stable/2535387 . Accessed: 13/02/2014 10:29
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The Theory of Home Production: The Past Ten Years

Reuben Gronau, Hebrew
University of Jerusalem It is a great honor to stand here before you-the first lunch speaker at the first conference of the Society of Labor Economists. If I come here with mixed feelings, it is only because the original speaker, Jacob Mincer, could not be here with us. There are few people whose name is more closely associated with our discipline than Jacob Mincer. We owe him a debt of gratitude for his pathbreaking contributions on the investment in human capital, the distribution of earnings, married women's supply of labor, mobility and the economics of migration-topics which have become (to a large degree because of his contribution) central themes of the "new" labor economics. But no less important is his contribution to the methodology-the close link between theory and empirical research, the respect for data, the recognition of the limitations of our empirical tools-features that have become the hallmarks of our profession. The SOLE conference signifies the coming of age of our discipline. The regular sessions point towards the new frontier to be conquered, and it is only appropriate that this lunch address be devoted to some stock taking. I will focus on my own area of specialization-the theory of home production and the allocation of time. Jacob Mincer's paper on the value of time at home was published in 1963. Gary Becker's seminal paper (1965) is by now 31 years old and is widely recognized as one of the new labor economics' major contributions. Time constraints prevent me from doing justice to the topic in 20 minutes. Fortunately, I summarized the history of the first 20 years in my Handbook of Labor Economics survey (1986), so that I can concentrate on the last decade. My 1986 survey had five sections: the theory, the allocation of time, the allocation of goods, the value of time, and the value of home production. I

[Journal of Labor Economics, 1997, vol. 15, no. 2] (C 1997 by The University of Chicago. All rights reserved. 0734-306X/97/1502-0009$02.50 197

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did not discuss special applications, such as the demand for health services, the demand for transport, fertility and family economics, and so forth, assuming they would be covered in separate chapters. The AEA's Econ-Lit database contains the key words "home production" and "time use" and in the past decade yields over 250 titles (i.e., a new home production article is born every fortnight). Perhaps the most popular, and most natural application is in the context of less developed countries. There is not a single less developed country that cannot claim at least one study using the model. These studies span three continents: India, Bangladesh, Pakistan, Nepal, the Philippines are some of the Asian representatives;the Sudan, Ghana, Malawi, Cote d'Ivoire, Nigeria, represent Africa; Peru, Brazil, the Caribbean (and New York City) represent the Western Hemisphere.' The topics range from an assessment of improved cooking stoves (Tagro 1993) to the standard topics of fertility, health, home versus market production, and labor supply. Many of these studies are based on detailed time-budget surveys. The World Bank and other international funding agencies were among the first to recognize the importance of time budget surveys for research and policy and invested considerable resources in improving the methodology and collection of the data on time use as well as on "outputs" (e.g., health outcomes, nutrition). New time-budget surveys have also been conducted in several developed countries: Canada, Germany, Denmark, the Netherlands, Australia and Israel. Recent surveys in Eastern Europe are expected to reveal some of the more dramatic aspects of the transition from a planned to a market economy. These studies have generated new estimates of the value of the output of the nonmarket sector (several studies have been conducted in Germany on this topic).2 A brave attempt has been made to reestimate gross national product in the United States for the period 1800-1860 incorporating the contribution of the nonmarket household workforce to the economy (Folbre and Wagman 1993). The estimation of the value of home
1 A short (and, perhaps, nonrepresentative) sample includes Malathy (1982); Alderman and Chisti (1991); Cain (1991); Dagsvik and Aaberge (1991); Olayiwole (1991); Rosenberg (1991); Alderman and Sahn (1993); Amacher, Hyde, and Joshee (1993); Behrman and Deolalikas (1993); Maglad and Eldin (1993); and Skoufias (1993). 2 Studies based on German time-budget data are Assenmacher and Wenke (1993); Merz and Wolff (1993). The Danish studies appear in Mogensen (1990). A survey of studies imputing the value of home production is provided by Goldschmidt-Clermont (1993) and several studies by Quah (e.g., 1990, 1993). The implications for income distribution are explored in Bonke (1992). Finally, Biddle and Hamermesh (1990) remind us that even sleep is subject to economic consideration.

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production of housewives has become a flourishing branch of the forensic literature.3Needless to say, the model was adopted by environmentalists to analyze (among other issues) the willingness to pay for ozone control.4 Gary will be happy to learn that his paper has been embraced by the new Marxist economists. A recent contribution to the field is named "For Every Knight in Shining Armor, There's a Castle to Be Cleaned: A Marxist-Feminist Analysis of the Household" (Fraad, Resnick, and Wolf 1994). On the theoretical side, there have been several attempts to couch the model in terms of an overlapping-generations model (Rios-Rull 1993; Rosenzweig and Wolpin 1993). To my mind, the greatest contribution of the theory of home production in the past decade was in its service to the better understanding of consumption behavior and changes in labor supply over the business cycle. One of the main points of the model is that one cannot separate the analysis of consumption behavior from the analysis of time use. Both are jointly determined by the demand for home activities (commodities) and by the technology of home production. Only 10 years ago, very few studies incorporated any element of time in the estimation of the consumption function. Browning and Meghir (1991) answered this challenge, showing the effects of male and female labor supply on consumption patterns.5 Perhaps even more important is the new light shed by the theory on the effect of children on consumption. Last year we celebrated the centennial of Engel's first estimate of the cost of living of Belgian working families (1895). Since then, the estimation of adult equivalence scales has developed as a separate branch of empirical economics, completely apart from developments in macroeconomic theory. When it was picked up by our colleagues studying consumption behavior, their emphasis was on formal presentation (i.e., the mathematical formulation of the child variable in the utility, indirect utility, and expenditure functions). Adult equivalence scales were regarded as price indices, accounting for changes in the number and age composition of children. Pollack and Wales (1979) were the first to remind their colleagues that, whereas prices change exogenously and convey little direct utility, children enhance their parents' welfare, and their number is subject to choice. But it was left to researchers

3See, e.g., Brandi (1991); Ireland (1991); Larimore (1991); Dulancy (1992); Fischer (1994). 4Examples include Milon and Clemmons (1991) -discussing optimal hunting strategy; Dickie and Gerking (1991)-estimates of the willingness to pay for ozone control; and the studies in Braden and Kolstad (1991). 'Another example is Manser (1993).

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brought up in the tradition of home production (Lazear and Michael 1988; Gronau 1988; Nelson 1988)6 to point out that the term "economic needs" does not exist in the economics vocabulary, that the effect of children on consumption patterns depends on the intrahousehold redistribution of resources and consumption technology, and that in discussing "children-welfare indices" (which adult equivalence scales presume to be) one has to ask: whose welfare do we have in mind? These aspects, so fundamental to anyone practicing the economics of human resources, resulted in a dramatic change in the way the economics profession now regards the estimation of the cost of children and adult equivalence scales (Browning's 1992 Journal of Economic Literature survey contains an almost up-to-date summary of the state of the art). A side benefit of this discussion was the renewed interest in an old topic in welfare economics and the economics of human resources-the intrahousehold distribution of resources. The exact specification of the conditions that allow the estimation of adult equivalence scales-the separability of parents' utility from their own consumption and the utility they derive from their childrens' consumption, and the two-stage budgeting it entails-are the key to the estimation of the intrafamily distribution decision. The sophisticated formulation of Chiappori, Bourguignon, and Browning gave rise to several estimates of the "collective" model.7 The new estimates cast some doubt on the accepted approach regarding the household as an income-pooling unit. The second important development occurred in what might be the least expected area-macroeconomics. Gary Becker, in his 1987 AEA presidential address (Becker 1988), discussed the implications of family economics for macroeconomics. He mentioned population growth as an endogenous variable, the importance of human capital in the growth process, intergenerational transfers of wealth, and long-term cycles. But it is in the explanation of short-term business cycles that macroeconomists found the tools provided by labor economists most helpful. In a series of studies the teams of Greenwood-Hercowitz and Benhabib-Rogerson-Wright (the two teams have recently joined forces)8 show that a symmetric treatment of the home and market sector consider-

6 An extensive scales discussionof the welfareimplications of adultequivalence

is contained in Pollack (1989). ' Apps and Rees (1988, in press); Chiappori (1988, 1992), BrowningandChi-

appori(1994), Browninget al. (1994). A collectionof paperstryingto applythe in Chiapporiet al. (1993). collectivemodel to less developedcountriesappears 8Among their contributionsare Benhabib,Rogerson, and Wright (1991);
Greenwood and Hercowitz (1991); Nosal, Rogerson and Wright (1992); Green-

wood, Rogerson,and Wright(1993, 1995); McGrattan, Rogerson,and Wright

(1993); Rupert, Rogerson, and Wright (1995).

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ably improves the performance of their real business cycles models and solves some puzzles relating to changes in output, labor inputs, and productivity over the cycle. McGrattern et al. (1995) conclude one of the recent papers with the statement, "Based on these findings, we would argue that a model with home production should be the benchmark by which other models of this class are compared." The explanation relies heavily on the high elasticity of substitution between home and market goods. The authors cite some cross-section evidence (Rupert et al. 1995) to support their interpretation. The issue calls for closer scrutiny. The last extensive U.S. time-budget survey was conducted 15 years ago. It is time we were given new data with which to examine this and other issues. In a closely related study, Bob Hall (in press) recently concludes that "recessions are times when circumstances change in a way that causes people to spend time in activities, such as job search, that are neither market work nor the enjoyment of time at home." Again, I am afraid, it falls to us to discover how the unemployed spend their time. I concluded my 1986 survey paper with the words: The theory is sometimes criticized for replacing traditional terminology with a more complex one. But one should not scoff at the importance of language. For example, an economist may feel reluctant to assume that schooling affects the marginal utility of time and goods by the same rate, but may feel comfortable with the assumption that schooling has a neutral effect on the productivity of time and goods. The theory of home production played a major role in the realization that economic considerations are as important in the home sector as in the market. The informal nature of the economic transactions taking place within the household hinders the detection of flows of goods and services within the home sector. In the absence of direct measurement, the distinction between consumption and production must necessarily remain conceptual. After twenty years, and in spite of the many studies it generated, the full potential of the theory has yet to be realized. With few exceptions, it has not yet served in the analysis of specific time uses. We do not know much more about the interaction between time and goods in specific activities than we did twenty years ago. For all its shortcomings, the new theory of home production has made an enormous contribution to our understanding of economic processes in the non-market sector. Its full potential has yet to be realized. We have covered a lot of new ground in the past decade and extended our hold on some old areas. I still believe, as I did then, that the full potential of the theory has not yet been exhausted. References Alderman, Harold, and Chisti, Salim. "Simultaneous Determination of Household and Market-Oriented Activities of Women in Rural Paki-

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stan." In Research in Population Economics, edited by T. Paul Schultz, 7:245-65. Greenwich, CT: JAI, 1991. Alderman, Harold, and Sahn, David, E. "Substitution between Goods and Leisure in a Developing Country." American Journal of Agricultural Economics 75, no. 4 (November 1993): 875-83. Amacher, Gregory S.; Hyde, William F.; and Joshee, Bharat, R. "Joint Production and Consumption in Traditional Households: Fuelwood and Crop Residues in Two Districts in Nepal." Journal of Development Studies 30, no. 1 (October 1993): 206-25. Apps, Patricia F., and Rees, Ray. "Taxation and the Household." Journal of Public Economics 35 (1988): 155-69. . "Collective Labor Supply and Household Tradition." Journal of Political Economy (in press). Assenmacher, Walter, and Wenke, Martin. "Home Production, Female Labour Force Participation and Household Service Consumption in the Federal Republic of Germany" (in German). Jahrbucherfir-Nationalokonomie und Statistik 211, nos. 1-2 (January 1993): 22-41. Becker, Gary S. "A Theory of the Allocation of Time." EconomicsJournal 75 (1965): 493-517. . "Family Economics and Macro Behavior." American Economic Review 78, no. 1 (March 1988): 1-13. Behrman, Jere R., and Deolalikar, Anil B. "The Intrahousehold Distribution of Market Labor Supply in Rural South India." Oxford Bulletin of Economics and Statistics 55, no. 4 (November 1993): 409-20. Benhabib, Jess; Rogerson, Richard; and Wright, Randall. "Homework in Macroeconomics: Household Production and Aggregate Fluctuations." Journal of Political Economy 99, no. 6 (December 1991): 1166-87. Biddle, Jeff E., and Hamermesh, Daniel S. "Sleep and the Allocation of Time." Journal of Political Economy 98, no. 5, pt. 1 (October 1990): 922-43. Bonke, Jens. "Distribution of Economic Resources: Implications of Including Household Production." Review of Income and Wealth 38, no. 3 (September 1992): 281-93. Braden, John B., and Kolstad, Charles D., eds. Measuring the Demand for Environmental Quality. Contributions to Economic Analysis, no. 198. New York: Elsevier Science, 1991. Brandi, Jay T. "Evaluating the Estimated Value of Marital-Labor Input: Application of the Professional Human Capital Methodology." Journal of Legal Economics 2, no. 1 (March 1992): 37-48. Browning, Martin. "Children and Household Economic Behavior." Journal of Economic Literature 30, no. 3 (September 1992): 1434-75. Browning, Martin; Bourguignon, Francois; Chiappori, Pierre-Andre; and Lechene, Valerie. "Income and Outcomes: A StructuralModel of Intrahousehold Allocation." Journal of Political Economy 102, no. 6 (December 1994): 1067-96. Browning, Martin, and Chiappori, Pierre-Andre. "Efficient Intra-household Allocation: A General Characterization and Empirical Tests." Document no. 94-16. Paris: DELTA, 1994.

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Browning, Martin, and Meghir, Costas. "The Effects of Male and Female Labor Supply on Commodity Demands." Econometrica 59, no. 4 (July 1991): 925-51. Cain, Mead T. "The Activities of the Elderly in Rural Bangladesh." Population Studies 45, no. 2 (July 1991): 189-302. Chiappori, Pierre-Andre. "Rational Household Labor Supply." Econometrica 56 (January 1988): 63-90. . "Collective Labor Supply and Welfare." Journal of Political Economy 100, no. 3 (June 1992): 437-67. Chiappori, Pierre-Andre; Haddad, Lawrence; Hoddinott, John; and Kanbur, Ravi. "Unitary versus Collective Models of the Household: Time to Shift the Burden of Proof." Unpublished manuscript. Washington, DC: World Bank, 1993. Dagsvik, John, and Aaberge, Rolf. "Household Production, Time Allocation, and Welfare in Peru." In Women's Work, Education, and Family Welfarein Peru, edited by BarbaraK. Herz and R. Khandker Shahidur, pp. 129-69. World Bank Discussion Paper no. 116. Washington, DC: World Bank, 1991. Dickie, Mark, and Gerking, Shelby. "Willingness to Pay for Ozone Control: Inferences from the Demand for Medical Care." Journal of Environmental Economics and Management 21, no. 1 (July 1991): 1-16. Dulaney, Ronald A.; Fitzgerald, John H.; Swenson, Matthew S.; and Wicks, John H. "Market Valuation of Household Production." Journal of Forensic Economics 5, no. 2 (Spring-Summer 1992): 115-26. Engel, Ernst. "Die Lebenskosten Belgischer Arbeiter-Familien Frtiher und Jetzt." Internat. Statis. Inst. Bull. 9, no. 1 (1895): 1-124. Fischer, Charles C. "The Valuation of Household Production: Divorce, Wrongful Injury and Death Litigation." AmericanJournal of Economics and Sociology 53, no. 2 (April 1994): 187-201. Folbre, Nancy, and Wagman, Barnet. "Counting Housework: New Estimates of Real Product in the United States, 1800-1860." Journal of Economic History 53, no. 2 (June 1993): 275-88. Fraad, Harriet; Resnik, Stephen; and Wolff, Richard. Bringing It All Back Home: Class, Gender and Power in the Modern Household. Boulder, CO: Pluto Press, distributed by Westview Press, 1994. Goldschmidt-Clermont, Luisella. "The Monetary Valuation of Non-market Productive Time Methodological Considerations." Review of Income and Wealth 39, no. 4 (December 1993): 419-33. Greenwood, Jeremy, and Hercowitz, Zvi. "The Allocation of Capital and Time over the Business Cycle." Journal of Political Economy 99, no. 6 (December 1991): 1188-1214. Greenwood, Jeremy; Rogerson, Richard; and Wright, Randall. "Putting Home Economics into Macroeconomics." Federal Reserve Bank of Minneapolis Quarterly Review 17, no. 3 (Summer 1993): 2-11. "Household Production in Real Business Cycle Theory." In Frontiers of Business Cycle Research, edited by Thomas F. Cooley. Princeton, NJ: Princeton University Press, 1995. Gronau, Reuben. "Home Production-a Survey." In Handbook of La-

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