Recent Developments in the Economics of Home Production and Nonmarket Work

October 18–19, 2012

(All day)

The Stevanovich Center for Financial Mathematics
Organizers
Erik Hurst, V. Duane Rath Professor of Economics, Booth School of Business; Deputy Director of BFI
Loukas Karabarbounis, University of Chicago Booth School of Business
Randall Wright, University of Wisconsin

Economic shocks, long-term unemployment trends, an aging population, and evolving trends in family formation are producing shifts in how individuals allocate time between home life and work in the marketplace. Economists from diverse fields came together at this conference to discuss recent research revealing trends and influences on household behavior.

Bringing Macroeconomics Home

Differing approaches exposed participants to novel perspectives on home production issues. Macroeconomic models were used to shed insight on family formation, and family economics theory was employed to help explain macro trends—with some disagreement in both cases. Evidence from biology was suggested to clarify economic issues. U.S. patterns were compared to Canada, which has not yet experienced a housing bust but exhibits similar employment trends in other sectors, and to Europe, where time spent on housework is very different, especially for cohabitating couples.

Most discussions inevitably touched on the basic questions of why humans form household units. Traditional Beckerian economic incentives are a common explanation—people leverage complementarities when forming a family, and specialize in housework tasks. Martin Browning and Almudena Sevilla Sanz presented new time-use research to documents this.

These incentives can also account for long-term trends in characteristics of the family. Jeremy Greenwood and his coauthors shared work that found changes in wage structure have changed educational attainment and choice of spouses for US women but do not motivate their entry into the workforce. Household technology that improves efficiency in the home does move women into the work force. It also leads to more marriages and fewer divorces.

The family unit can also serve as an insurance mechanism, as members protect each other from market uncertainty. Richard Blundell investigated the implications of insurance within the household on the transmission of income to consumption inequality, while Fang Yang examined the implications of social security reform in the presence of the household as untaxed insurance alternative.

The Dynamics of Work and Family

Researchers also addressed the market transaction costs that incentivize individuals to shift toward household production. Randall Wright examined the effects of taxes on marriage formation, particularly the tax imposed by inflation on cash holdings, which married individuals carry less of than singles.

Movement into and out of the home sector was also a major theme for presenters. The latest recession has produced patterns of non-market activity that are unlike previous US business cycles. Matthew Notowidigdo documented a sharp increase in the nonemployment rate that has not yet rebounded to the usual level. Underlying this is a long-run decline in manufacturing employment that was partially masked by the housing construction boom, suggesting that the employment rate may be permanently lower.

Taking a different angle, Henry Siu investigated movements in nonemployment by skill type, finding a hollowing out of middle-wage occupations generally associated with those jobs that emphasize routine tasks. These routine jobs are typically lost in recessions and do not recover—a trend becoming more pronounced in the increasingly jobless US recoveries.

Richard Rogerson's work distinguished two ways that workers allocate their time between market and nonmarket work: by adjusting their employed hours, and by moving into and out of the market entirely. Estimating any macroeconomic trends requires understanding workers' response on both of these margins, but characterizing the latter is historically difficult. The authors use new panel data on income and work to examine moves out of the labor force.

Challenges and Lingering Questions

Because households don't generate the same data trail as the business sector, it is a challenging area for economists to study. Conference presenters pointed to several difficulties stemming from limited data: distinguishing between cyclical and long run trends, changes in market versus household productivities, and measuring time use and incentives for family formation. To overcome these issues, studying home production requires thoughtful theory and careful use of limited data, both of which were demonstrated in force to address a couple of common themes.

Many crucial questions about household and family economic choices have seen significant progress, but remain open: How much of recent movements to the home sector will persist in the long run? How much does the existence of the home sector cushion the welfare impact of business cycles and public policy changes? How do productivities in the household differ across time and culture? How can we explain long-term trends in the role of the family? The yield to further home production research could be enormous.

October 18, 2012 (All day) October 19, 2012 (All day)