are available for the resulting outputs. The wage rates of the workers who contribute the labor component of these market services provide one basis for attaching a price to the time used in household production. Under a specialist wage approach, for example, the productive time spent repairing one’s roof would be valued at the hourly wages paid to roofers; the productive time spent gardening would be measured at a gardener’s wage; the productive time spent changing diapers would be measured at a nanny’s hourly salary; and the productive time input into doing laundry would be valued at the hourly wage of a laundry service worker hired to work in the home. Under a generalist wage approach, the wage for a handyman or a domestic servant might be used to value time devoted to a variety of activities.

The logic of using the market approach is clear: it reflects the hourly value of skills applied to particular activities. As such, it provides a market measurement of the contribution of the activity to aggregate production, independent of the consumption and production choices made by the household. The difficulty with both the specialist and generalist approaches is that they ignore factors relating to the efficiency and quality of time that individuals spend in the productive task in the household. This issue is not much of a problem if the productive activity in question is making toast; if it is plumbing, however, an inexperienced homeowner would spend far more time on the task than would an experienced specialist. Using the specialist wage rate thus would overstate the value of the input.

Household Members’ Wage Rates

Another approach is to value each household member’s time at his or her market wage rate. The argument is that he or she is presumably foregoing some earnings in order to produce at home, so that the opportunity cost of the home production is the foregone earnings. These foregone earnings may be proxied by the person’s average wage rate. One benefit of this approach is that it is easy to apply. There is no need to decide on specific market substitutes for each different household production activity and to measure their prices. All quantities of productive household time can be summed and valued at the wage rates of the household members engaged in home production. Indeed, the aggregate amount of time spent in what have been determined to be household production activities could be valued at something close to the national average wage rate.5

One of the several problems with this approach is that some home production is generated by individuals who do not have a market wage—housewives and househusbands, retirees, some teenagers, and others. This difficulty can be overcome by imputing market wage rates of such individuals as equal to those of

5  

Using the national average wage rate would not be precisely correct, since those with high market wage rates likely spend relatively few hours in home production, while those with low market wage rates likely account for a proportionally larger share of home production hours.



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