that such a modified replacement approach represents the conceptually ideal method for valuing time inputs to nonmarket production.
Recommendation 3.4: Time inputs to home production should be valued at their replacement cost, ideally adjusted to reflect skill and effort differences between home and market production.
Implementing this recommendation will require that methods be developed to estimate the productivity of the typical household member in different activities and to adjust replacement wage rates accordingly. Specifically, one would like to be able to identify when the skill and effort of people performing nonmarket tasks diverges sharply from the market-based alternatives. Nonmarket accounting of home production—as well as volunteer labor, health care, and other activities—would benefit from research and data that allow estimation of the relative efficiency of nonmarket and market labor. This would require details on the amount (and quality) of work performed in nonmarket environments that goes beyond what is captured in the American Time Use Survey (ATUS).
In thinking about the various possible approaches to the valuation of time devoted to home production, it is interesting to note that individuals frequently undertake household production tasks in situations where their market wage exceeds the amount they would need to pay someone else to do the job. This means that the market value of the individual’s time input is less than the amount he or she could have earned by devoting the time to market work. We interpret the difference between the family member’s market wage and the replacement cost of the market-based service as an estimate of the consumption value (enjoyment) that the individual receives from supplying the service personally rather than through the market. We do not recommend that this consumption value be included as output in the nonmarket household production account. There are a whole range of activities, including market work, that provide different levels of satisfaction across individuals.6 As is discussed elsewhere in this report, one could envision a separate account designed to quantify and value the recreational component of activities such as jogging or woodworking that might also appear in other accounts (e.g., health or home production). The goal of the household production account we are proposing is to quantify and value market-replaceable goods and services produced by the household for consumption. Satisfaction derived in the process does not belong in this account.
In fact, surveys of individuals seem to indicate that among work and nonwork activities, market work (people’s jobs) tends to be in the middle in terms of enjoyment. The cluster of disliked activities includes things like house cleaning, laundry, and going to the dentist (see Nordhaus, 2004, p. 17).