The value of household services was equal to about 37% of GDP in 1965, but is currently equal to about 23% of GDP.
Tyler Cowen implies that this is a bad thing.
I think of it this way.
“Household production” is inefficient. In the limit, if you produced everything you consume and consume nothing that you do not produce, then you will be at subsistence level–if you are lucky. Our standard of living depends entirely on specialization and trade.
If a surgeon mows her own lawn, it means either one of two things.
a) she likes to mow lawns, so this represents consumption; or
b) this is a market failure, and she would much rather get paid for doing another surgery and use that money to pay for lawn mowing and other things, but for some reason she cannot.
What the Commerce Department is doing is imputing a value to the time that people waste doing housework. All that tells us is the value is lost by not enabling those people to engage in specialization and trade instead of doing housework. It is a measure of market failure.
And of course this imputed (i.e., artificially made-up) value has gone down relative to GDP, because people (women, mostly) are spending less time on housework and more time engaged in specialization and trade. This means that there is less market failure nowadays than there was back then. We should be happy that the number is going down, and we should hope that it heads toward zero.
“spending less time on housework and more time engaged in specialization and trade”
Isn’t this a fancy way of saying “drone labor people hate.”
I have some women come and clean my condo every month. Is the fact that they are cleaning my home instead of their own a wonderful example of specialization and trade? The fact that their children are being raised not by their mothers but by disengaged low wage strangers at a day care facility an example of the benefits of specialization and trade? Does the McDonald’s employee that cooks for others, but no long cooks for themselves because they don’t have the time while working, an example of specialization and trade? Are we all healthier for it?
Everything I’ve seen tells me the opposite. People who feel squeezed to make enough money in the “specialization and trade” economy become two income (or single mother income) households to make ends meat. This usually means cutting corners in child rearing, household maintenance, community involvement, etc.
The women doing these jobs rarely seem satisfied in them. The marginal return to their labor is pretty low, which you can find out from just googling “should my spouse work calculator” and putting in median american info.
This whole surgeon thing just shows how out of touch the post is. My Mom hated her crappy jobs, and would have much preferred to stay home. Had my Dad never gotten sick she never would have worked. Of course now that his union has been busted everyones wives have to work to make up for wages getting sliced in half. This is not an improvement in specialization and trade, its desperate people doing desperate things that represent a decrease in quality of life.
A world in which this number goes to zero is a world in which people work all day and never see their families or communities. Where an entire generation is raised by strangers. Terrifying.
You are assuming certain things about the division if labor.
Most if my kids’ teachers are better at it than I am. But I’m a decent coach so I sometimes coach their sports teams. They get churched by experts while their parents are always nearby to handle personal emotions and interests. It isn’t perfect but it’s close to the best we can do.
While I am sympathetic to the inefficiencies, if the number goes toward zero, it will be mostly because we want it to.
The issue I see is this is a socio-economic choice by society in which the US from 1948 – 1973 had a good system of preferred men in the workforce. Families could be both single income and have larger families. However by the early 1970s this system started to collapse due to: Improve manufacturing by the Japanese, improved manufacturing technology, huge commodity price increases and a corporate/union structure that was not productive. (It appears the historical breaking point was 1974 oil embargo.)
In terms of the 1970s, there were a lot of economic problems but job creation was not one of them as Jimmy Carter one term had a higher percentage increase in jobs than Ronald Reagan’s (or even Clinton!) two terms. So from the late 1970s into the early 1990s, conservatives made a trade in which it was expected married people had two incomes with falling working class wages to cover the income loss. (Notice most charts showing non-manager manufacturing real wages hit a high point in 1973 and fall for the next 20 years to 1994. That chart explains a lot of the Perot run.) So unfortunately a lot families made choices similar to your family.
There are a lot things at work here:
1) In 1965, we have remember market failures that would be female surgeons might be a home vacuuming the house and not doing what they should be doing.
2) Isn’t a lot of this the household size is smaller in 2016? In reality ,the ‘production’ of babies has dropped the last forty years.
3) How do you value ‘home-schooling’ for GDP purposes? It is vastly increasing but it value is ~$6,000/student but that is not what is paid.
I do believe ONE of the reason for lower labor participation, is families are returning back to single income families with a spouse taking care of the kids. (I have seen several of my office co-workers quit for this purpose and suspect it is 1 – 2% of the labor force drop since 2008.) So if families return to single income, I suspect the amount of ‘outsourced’ household production decreases as now the spouse (which is probably 25% men) are now cleaning house instead of getting maid services.
Now the question is the increase of single income families which benefits the children at the cost of lower labor participation a good trade here? Our current economy is mirroring the 1950s economy, medium per person growth with low job creation, a lot here.
In terms of great Micro-economic debates is whether or not the labor supply curve backward bends. In most cases probably not but if you a couple ‘sharing’ the work and household production, there is a that having one income and one spouse working on household is the optimal choice here. I still suspect as technology grows and less labor is needed for the economy, this is one solution for falling labor demand.
In any other economic sector wouldn’t this be called efficiency gains?
Do you really want to live in a society where men can’t change the light bulb without calling an electrician?
Personal competence is a name for those who can do many things. Idiot savant is the same for someone who can do just one thing in life.
The new Atlantic magazine has a fascinating article on an anthropologist who is teaching experimental archeology., His students are taught how to make their own flint tools and gut a deer for meat. At the start of a class, he found that his students did not know even how to crack an egg. I guess the students took specialization and trade very seriously.
“Household production” is inefficient. In the limit, if you produced everything you consume and consume nothing that you do not produce, then you will be at subsistence level–if you are lucky.”
Yes and no. You can buy a toaster on Amazon for $15. Thomas Thwaites spent almost a year trying to build one from scratch just to see if he could (and get a TED talk and book deal out of the experience). That kind of home production is obviously a really bad idea. But the analysis is quite different for the kinds of home production people actually do (shopping, cooking, cleaning, painting, gardening, home repair). In those cases, the efficiency advantage of the specialists is much less, and there is a lot of overhead involved. First of all, home production is un-taxed while hiring professionals is paid out of marginal after-tax income, so deduct ~40% from the efficiency of the pro right off the top. Then you have travel costs for the pro to make the call, search costs to find the pro, and scheduling and principal-agent problems which impose monitoring costs and possibly dispute resolution costs as well. And in a lot of cases, the buyer of services will need to be taking time off of paid work just to be present so the pro can work.
I think Prof. Kling misunderstood Prof. Cowen’s point. Less household production as share of GDP is not necessarily a bad thing and the best number may very well be 0%.
However, household production is generally not included in the GDP figures, even though it arguably should be. If actual GDP, including household production, used to be 37% higher than measured GDP, but now is only 20% higher than measured GDP, then the growth in actual GDP over the period has been even lower than the pretty dismal numbers we are observing.
Hence, this statistic supports Prof. Cowen’s hobby horse of the Great Stagnation, regardless of how one feels the ideal percentage of GDP household production ought to be. I think he is right on this point.
+1
Put another way, when a wife goes to work the addition to the economy isn’t her labor. It’s her labor – the value of the labor she was doing in the home. So if she makes $50,000 and the value of her household labor was $40,000 then the productive addition to the economy is only worth $10,000, a mere fraction of what shows up in GDP statistics.
I agree completely. One way to understand this point is to imagine this simple hypothetical:
My neighbor and I live in identical houses and we are equally messy. Initially, we both clean our own houses and nothing is added to measured GDP.
Then we decide to pay each other $100/week to clean each other’s house. Suddenly, measured GDP is $10k/year higher than it used to be. But economically nothing has changed. This suggests that we ought to include our cleaning labors in GDP regardless of whether we clean our own houses or each other’s.
[I’ll set aside the complication of taxation which would come due under the alternative. But it is perhaps worth noting that as household services are not taxed, the government’s tax take as a percentage of actual GDP rises as household work falls, even if it remains constant in terms of measured GDP.]
The argument to the contrary is of course the usual for imperfections in GDP. Household services are hard to measure accurately and as long as GDP figures have so much political and even legal valence, we don’t want economists under the control of the government too much leeway in redefining GDP.
Imagine, if you will, a Greek PM, facing charges that his budgets are an unsustainable and national debt is 130% of measured GDP, declaring that each of the millions of Greek housewives produces several meals a day at least as good as those to be had at high prices in a fancy, three-star Parisian bistro. And anybody who would deny this, is no Greek patriot and has no respect for his mother or wife. But once you include that enormous sum in the Greek GDP, the actual debt ratio is only a perfectly fine 25%!
There are limits to specialization.
I cannot hire somebody else to sleep for me, reproduce for me, breathe air or digest food for me. These sorts of things are the very core of being alive, and of the nature of the human species.
The specialization part of PSST is meant to be bound to improved productivity – but this fails for a large class of tasks in which people are paid for little more than being present and paying attention.
Childcare is a fine example – because of how human beings work, children require a lot of 1-on-1 and 1-on-very-few attention. My leaving my children in daycare to go work as a receptionist probably doesn’t generate any net gain in economic output (but higher taxes!) The people for whom it DOES work are working at jobs with productivity multipliers and paying people for a productivity 1 job.
Any time a person goes from one job with productivity essentially fixed at 1 to another job with productivity fixed at 1, hiring somebody to replace them in the first job, it will be an economic loss to taxes and transaction issues.
There are other problems with the “surgeon mowing her lawn is consumption” story – maybe she needs the exercise or variation in activity, and mowing the lawn is actually part of preparation for her job. Maybe hiring somebody to mow the lawn is so fraught with regulatory, tax, and transaction costs in her jurisidiction that it’s actually net cheaper to do it herself. Maybe the demand for her services is completely filled, and there is no sensible opportunity to do more surgeries in any given time. (Or, she’s on salary – for many on salary, working past the standard amount to earn the salary is a fool’s errand.)
+1
I think Cowen’s point was that there were gains in output ‘merely’ from the drop in household production that contributed to GDP growth. So, because GDP growth has been low, a substantial part of it may be due to ‘mere’ increased participation in the market economy, and so the great stagnation is even worse than we thought.
I will say that free YouTube videos combined with cheap and quick home delivery of tools and parts have made my own home, computer, and auto repairs much more worth my time than trying to arrange for an experienced professional. I shudder when I think of some researcher trying to throw in some black box estimates of what is ‘really’ going on.
In the alternative, Cowen could be saying that the decline hasn’t been very impressive at all despite the passage of 50 years, and especially considering the entry of women into the workforce and the higher present GDP per capita. So perhaps in the sense of not having outsourced much of our home production in that time, we are ‘stagnating’.
I think the likely alternative is that we cut corners. People who used to get one on one parenting from a SAHM get mass babysitting from a stranger in a daycare facility. Parents that used to get taken care of at home get thrown in a retirement home. Meals that used to be cooked get replaced with fast food. Resulting obesity adds to medical sector GDP.
Our standard of living also depends on our wealth. Being able to purchase labor saving devices increases our standard of living while reducing the time we spend on household production. I do wonder however that once robots take over (not the near future) that while specialization will be high there will no longer be high returns to it. Everyone will be trading their hours for the hours of someone else. Some hours will be more valuable than other hours, but they will be limited by our hours, or secondarily, our inventiveness. Our standard of living would be greater, but it would grow slower, only by that inventiveness. More free time and inventive AI could boost this, but invention is slow.
Do we still give women 15 minutes to give birth, or do they wait til coffee break?
All of the household production that was done in the past is still getting done, and then some. Note that houses are a fair bit larger today than in the past.
While some of that household production in now part of GDP since it is paid for in a market, a whole lot of it is getting done through higher productivity. Household appliances are wonderful things.
I suspect that most of the decrease in household production as a % of GDP is due to increased total output due to productivity rather than a mere shift of who is doing the work.
Just as an aside, a professional maid will clean my house in less than a quarter of the time it takes me. So from my viewpoint, they are clearly more productive.
You make quite a few assumptions about specialization that I don’t think can be made. Space, time, place, human biological relationships, they actually matter. Task is not the only kind of specialization.
The chief example is child care. There exists a unique relationship parent to child which simply cannot be duplicated. The question of whether parents or ‘specialists in children’ are better able to care for specific children is a topic of heated debate (in part because the professionals have a concentrated economic interest in the debate). This can extend to other things, however. Is a person better able to care for his own home because of the particularity of it?
Arnold Kling is right to be happy only if the answer is b) market failure. But increasingly there is evidence that for many women the answer would be a) maintaining a household makes them happier, except for social pressure and propaganda pushing them into careers they ultimately find unfulfilling. What to do about that is does not appear to be a strictly economic question.
Where the economics comes in is when women with years of advanced training finally realize in their early to mid thirties they would be more fulfilled to leave the work force to raise children and keep a household. A lot of resources have now been expended training a nurse or doctor or engineer, yet without the benefit to society of that additional professional.
One more economic problem is that on the lower end of the economic scale women may be pushed into the work force for jobs that turn out to be a wash or near wash. I.e. the costs of commuting and paying for child care and outsourcing cooking and other househild chores eat up most of the gains from the job they aren’t crazy about to begin with.