The recommended procedure for the NPI satellite account is … a form of the replacement cost approach that ideally uses as the shadow wage for volunteers the average gross wage for the occupational activities in which the volunteers are involved, taking account of known large discrepancies in the skill levels of paid employees and volunteers. Since this requires more detail on the activities in which volunteers engage than is likely to be available in most countries, however, we recommend a fall-back approach that assigns to volunteer hours the average gross wage for the community, welfare, and social service occupation category.
The SNA choice of the fall-back occupation is rightly conservative—the wage rate for the “community, welfare, and social service” occupation category is below the average wage rate in most countries. But using this approach as a basis for valuing volunteer labor, while operationally appealing, has little conceptual justification. Moreover, it assumes that volunteers represent a cross-section of types of labor utilized in paid jobs, a matter about which little is known.
The welfare-based valuation of volunteer time can be examined in the framework of a model in which a person seeks to maximize utility (U) by allocating time among three uses: leisure, paid work, and volunteering:
U = U(L, E, V)
where L is hours of leisure, E is hours in paid employment, and V is hours of volunteer work. Time uses L and V are positively related with utility (∂U/∂L > 0 and ∂U/∂V > 0); hours in paid employment typically are assumed to have a negative relationship with utility (∂U/∂E < 0), though some people certainly may enjoy their market work effort. The three uses of time must all be non-negative and must sum to total discretionary time available. In equilibrium, a person seeks to equate the marginal value of time in all three uses, subject to the non-negativity constraint. The marginal value of time devoted to leisure or volunteer work is just the marginal utility associated with the activity; the value of market work equals the wage that is earned by working less the disutility, if any, associated with the performance of that work. A person may choose to perform no paid labor, which is typical of retired people, or to engage in no volunteer work, which characterizes about 70 percent of all adults.
For persons who work and also volunteer, which describes some 30 percent of paid workers (U.S. Bureau of Labor Statistics, 2003), the equilibrium values of an hour of both V and L should be equal—to each other and (in the absence of marginal utility or disutility from time spent in market work) to the marginal wage, W, in the paid labor market. W is observable and provides a basis for imputing a value, at the margin, to volunteer time.
In this framework, volunteering contributes to economic welfare in two ways—as a labor input to production and as a provider of utility to the volunteer.