- Ironmonger, Duncan (1994) 'The Value of Care and Nature Provided by Household Work', Family Matters, 37 (April), pp.46-51.
- Thoen, M. (1993) 'The value of household production in Canada 1981, 1986', Discussion Paper (April). Ottawa: National Accounts and Environment Division (Statistics Canada).
Household satellite account and unpaid work
Household satellite account
23.127 The 2008 SNA recommends inclusion of part of households' non-market production within the production boundary and the use of a satellite account for recording the other part. The 2008 SNA production boundary includes subsistence production in agriculture, other goods produced by households for their own consumption, the own-account construction of dwellings and housing services provided by owner-occupied dwellings, and paid services of domestic servants in the household sector. Excluded are services generated from unpaid work, including services for the producing household, services for other households and volunteer and community work.
23.128 The 2008 SNA suggests that, in practice, goods produced in households for own use are to be included within the production boundary if the production is believed to be quantitatively important in relation to the total supply of those goods in the country concerned. The ASNA includes an imputation for the market value (less the input cost) of the more common types of such production in Australia (fruit, vegetables, eggs, beer, wine and meat) for inclusion in estimates of household final consumption expenditure. An estimate for such 'backyard production' is also included on the income side of the accounts, as part of gross mixed income.
23.129 A number of commentators, including Ironmonger¹¹³, have expressed concern that the production boundary records only a partial picture of the production of household goods and services and the accompanying use of capital and labour. For example, household members can obtain goods and services by buying them from the market. This activity is fully captured in the national accounts. Households can also produce goods and services entirely themselves, using their own labour and capital. While such production of goods will be captured if it is significant, the production of services (other than housing services provided by owner-occupied dwellings) is not measured in the national accounts. The use of market inputs would be measured in the national accounts to the extent that the non-market production of services involves the use of market inputs.
23.130 The exclusion of most forms of household non-market production of services from the national accounts is due, in part, to the difficulties in measuring non-market output. In particular, non-market activities, by their very nature, must be valued using imputations and it is not always clear what these imputations should be. Also, it is more difficult to define non-market production than to determine the scope of market activity. Because of these concerns, national accountants generally hold the view that broadening the accounts to include a wide range of non-market activity would produce a less useful tool for analysing overall economic activity.
23.131 Nonetheless, as economic activity crosses over from non-market to market, or vice versa, this can lead to distortions in the accounts. A classic example is the marriage of a housekeeper to his or her employer. Prior to the marriage, the housekeeper's output (presuming that housekeeper was being paid a wage) was included in GDP. After the marriage, the same output is excluded if the new spouse is not paid a wage; however, there has been no change in underlying economic activity. Only the institutional arrangements underlying the activity have changed.
23.132 In order to provide a more comprehensive picture of economic activity, the 2008 SNA suggests that satellite accounts be used. Household satellite accounts are where the concepts, in particular the production boundary, underlying the core accounts are altered, but they do this in such a way that there are clear linkages with the core accounts. These can be compiled in both monetary and non-monetary terms. Thus, it would be possible, for example, to make non-monetised comparisons based on time spent in formal and informal economic activity as well as to monetise unpaid work, if so desired. Therefore, a household satellite account can provide comprehensive information on household economic activity within a framework that is consistent with the core national accounts, without subjecting the core accounts to the vagaries associated with defining and measuring household non-market output.
23.133 It is possible to widen the scope of household activity to look at frameworks that encompass not only household production but also describe consumption, saving and accumulation of wealth activities in households. This could be done at either the macro or micro level; that is, at the level of the household sector as a whole or disaggregated by types of household. A macro framework has been developed by Eurostat and a provisional micro framework has been developed by the ABS. Statistics Netherlands has developed a framework that seeks to show macro-micro linkages. Each of these frameworks is discussed below.
23.134 As mentioned above, one of the main issues in measuring non-market household production is to determine an appropriate method for valuing the production. Three approaches have been suggested:
- the unpaid work approach;
- the input approach; and
- the output approach.
23.135 The most common method used to date has been the unpaid work approach, which takes account only of (unpaid) working time and its imputed value. ABS studies to date have used this approach.
23.136 The input approach values household production as the sum of the values of all its inputs: time use, intermediate consumption, and capital costs.
23.137 The output approach values household production at its imputed output value, in the same way that in-scope household non-market production is valued in the core national accounts.
Unpaid work approach
23.138 The essence of this approach is to multiply hours of unpaid work, usually obtained from a time-use survey (TUS) by an appropriate wage rate. The first Australian unpaid work study, published in 1990, used data from a 1987 pilot TUS. Three basic methods of valuation were used:
- the opportunity cost method;
- the individual function replacement cost method; and
- the housekeeper replacement cost method.
23.139 Each of these methods used wage rates that were on a 'before-tax', or gross, basis.
23.140 The second study, completed in 1994, used data from the first national TUS of 1992, and retained these three methods. It refined the housekeeper replacement cost method, and also distinguished between a gross opportunity cost method and a more appropriate net opportunity cost method, based on after-tax wage rates. The individual function and housekeeper replacement cost methods remained on a gross basis.
23.141 The third Australian study, completed in 2000 and based on the results of the 1997 national TUS, used the same methods as the second study. The study also introduced a hybrid of the individual function and housekeeper replacement cost methods.
23.142 A more detailed discussion of this approach is outlined in the Unpaid work section below.
23.143 Under this approach, the household is regarded as a production unit in which commodities and services are produced by combining work, intermediate consumption and household durables. This approach allows for better integration of household production into the system of national accounts. The formula used is as follows:
|Value of labour|
|+||wages paid to domestic servants|
|+||taxes less subsidies on production|
|=||net value added|
|+||consumption of fixed capital|
|=||gross value added|
23.144 This formula is similar to that used in the national accounts to value the non-market output of the general government and non-profit institutions serving households sectors. The input-based approach was used by the German Federal Statistical Office in its estimates of the value of German household production in 1992.
23.145 The input-based method is used to measure the non-market output of households, such that the value of labour component relates to unpaid labour. Accordingly, the observations in the preceding section on the unpaid work method also pertain to this component.
23.146 The taxes less subsidies on production component refers to transfer payments made by households to governments and vice-versa that are recorded as secondary income transactions in the core national accounts but would be considered to relate to non-market household production. These transfer payments would then be reclassified in the household satellite account.
23.147 The consumption of fixed capital component relates to the depreciation of household durables used in the household production process. In the core accounts, purchases of durables (e.g. motor vehicles, refrigerators, washing machines) by households are recorded as final consumption expenditures and not as capital formation. In the satellite accounts, household expenditure on consumer durables would need to be reclassified from final consumption to gross fixed capital formation.
23.148 The more difficult aspect of measuring the consumption of fixed capital component would be in actually determining the appropriate amounts of depreciation in each period. The 'perpetual inventory method' (PIM) would require information about the decline in the efficiency of assets as they age, asset lives, the distribution of these lives about the average life, and changes in the price of assets. The ABS currently provides estimates of the stock of household durables as a memorandum item in the national accounts balance sheets. These data could be used as a starting point for deriving estimates of consumption of fixed capital.
23.149 The intermediate consumption element would consist of goods and services acquired by households that are used up in household production. To the extent that this production fell outside the production boundary, measuring the associated intermediate consumption would require identifying and reclassifying expenditures treated as final consumption in the core accounts. For some goods or services, it would be reasonable to assume that all expenditure on them should be classified to intermediate consumption. For example, meat purchases would all be classified to intermediate consumption because meat products generally have to be prepared or cooked before they are ready for a meal. Other goods or services could be used in production or as final consumption. For example, ice-cream can be eaten as such or used as an ingredient in desserts. As it is usually eaten directly, it would probably be allocated to final consumption. On the other hand, fruit, even though it is eaten mostly fresh, might have to be allocated to intermediate consumption as most fruits that are eaten fresh need to be rinsed, peeled, stored and distributed. The alternative to allocating expenditure on a particular product to either intermediate consumption or final consumption would be to split expenditure based on studies of the use of the product.
23.150 In deciding which expenditures should be classified as capital and intermediate in the household satellite account, the ABS would consider work already undertaken internationally in this area.
23.151 Estimates of household production developed using the input-based method could be presented in their own right or used to develop alternative estimates to those shown in the core accounts.
Output based approach
23.152 In the output-based valuation method, the gross output from household non-market production is valued by multiplying the volume of household output for different activities by market-equivalent prices for each activity. The rationale for this approach is that market goods and services could replace those generated in the household; therefore, the most appropriate way of valuing household non-market production is to use the prices of similar market production. Under the output-based method, the gross value added in household production is equal to the value of gross output less the value of intermediate inputs (where intermediate inputs are as described in the preceding section).
23.153 This method is considered to be the best for comparisons with national accounting aggregates, which are generally based on the use of market prices for valuing output. Valuing output in this way ensures that outputs are valued independently of their inputs, and avoids problems arising because of productivity differences between market and non-market producers.
23.154 The output-based approach resolves the issue of the joint production of services through simultaneous or parallel uses of time. The value of the labour used simultaneously can be found by deducting intermediate inputs and capital costs from the market value of the joint outputs.
23.155 The data requirements for the output-based approach are extensive and not readily available, particularly data on the volume of household output for different activities and corresponding market-equivalent prices. For this reason, there have been very few output-based studies to date.
Examples of household satellite accounts
23.156 A satellite account for household production could be presented in the form of an input-output table. Such a presentation would provide breakdowns of the value added (into capital and labour components) and intermediate consumption (into the various types of products used up in the production of household output) for each type of household output. Non-household production would also be shown so that the relationships between the economic activity of households and that of the other sectors of the economy could be explored. Supplementary information on the volume of household outputs or the time spent in the production of the outputs could also be shown. The value of household outputs could be derived using either the input- or output-based methodologies.
23.157 Ironmonger and others have argued that the development of such an input-output table is essential for a proper analysis of household economic activity. Thoen lists the advantages of placing household production within an input-output framework:
Household production can be linked to the SNA through the development of a satellite account with links through 'personal expenditures' which are common to both accounts: the complex interdependence between household and market activities in terms of the raw materials, intermediate goods and services, or labour inputs required to produce outputs can be analysed within a familiar accounting framework: the impact of macroeconomic policy on the 'household sector of the economy' can be analysed in terms of the substitutability of market supplied services for household production and the household capital/labour ratio and, consumer demand can be linked to the underlying household activities.¹¹⁴
23.158 Deriving a household satellite account in the form of an input-output table would be a more difficult exercise than deriving estimates of household production in aggregate because each of the components of production (labour, capital and intermediate consumption) would have to be allocated across the various types of household products. Ideally, this would be done based on studies of the various types of household activities. In the absence of pre-existing studies, it would be expensive to undertake such studies and it is highly unlikely that such expense could be justified. Alternatively, in cases where the allocation of a component is not clear-cut, indicators (such as the time spent on activities) could be used as a basis of allocation. This would reduce the usefulness of the input-output approach, as any analysis based on the relationship between inputs and outputs would be affected by (unknown) errors in the allocation process.
23.159 Eurostat commissioned Statistics Finland to develop a harmonised satellite system of household production. The Eurostat proposal is based on the European System of National and Regional Accounts (ESA 95), which is broadly consistent with the 1993 SNA. While Eurostat acknowledges that the output-based method has analytical advantages compared with the input-based method, it advocates the latter as the basis for measuring household production as there are currently insufficient data available to implement the former. The proposal however recognises that an output-based method could eventually be implemented. The focus of the system is the production account. The proposal has guidelines for adjusting the core income and capital accounts to provide comprehensive information on the consumption, income, saving and wealth of households. Such information would increase the analytical usefulness of the system as a whole.
23.160 If a satellite production account could be compiled that covered household production comprehensively, relatively little effort would be required to compile consistent income and capital accounts along the lines suggested in the Eurostat proposal.
Household income, consumption, saving and wealth (ICW)
23.161 The ABS has been at the forefront in the development of a conceptual framework for household income, consumption, saving and wealth (ICW). This framework was developed by the ABS in response to the process of revising the provisional 1977 United Nations (UN) Guidelines on Distribution of Income, Consumption and Accumulation of Households (known as M61). The UN guidelines were issued to assist countries to collect and disseminate income distribution statistics and to provide for international reporting and publication of comparable data. The provisional guidelines had a particular emphasis on linking income distribution statistics to current national accounting standards; they relate to the 1968 version of the System of National Accounts. There have been continuing demands for revisions to the 1977 UN guidelines to supplement the 1993 SNA. In particular, a need is seen to broaden the concept of income and develop analytical techniques to measure income inequality.
23.162 The ABS framework, published in A Provisional Framework for Household Income, Consumption, Saving and Wealth, describes how the range of flows and stocks of household economic resources can be brought together to provide a comprehensive measure of economic wellbeing for individual households. The framework also provides a conceptual link between these components of individual household economic wellbeing and those of the national economy as a whole. As such, the concepts and terminology used in the ICW framework are consistent with those used in the national accounts. Concepts, definitions and terminology have been modified where necessary because the focus of the ICW is on the individual household, rather than the household sector.
23.163 More specifically the framework is designed to allow for the measurement of:
- a household's power or command over economic resources;
- the extent to which a household is able to both consume and accumulate wealth and to make choices between these options; and
- the changes that take place in a household's economic wellbeing over time.
23.164 Together, these measures constitute a model that reconciles the various elements of income, consumption and net worth at the individual household level. Such a reconciliation will enable derivation of measures of both household saving and total accumulation of wealth. The ICW presents a synthesis between economic and social statistics, particularly as they relate to the household economy. The framework, however, has a provisional status, and the ABS has not yet begun to make it operational.
23.165 It is worthwhile elaborating on the differences between the ICW and the Eurostat satellite accounting system for the household. Eurostat's system focuses on the macro-side of the economy, with the household sector being the main statistical unit. The production side of the household economy tends to be the central area of analytic interest. Production and generation of income accounts are seen as 'crucial' for the system of household satellite accounts. The input-output tables are a detailed elaboration of the household production account but represent only one part of a system of accounts for the household sector. The Eurostat framework does not provide as detailed an insight into the income flows and financing decisions of households as the ICW system does. It has guidelines for an extended system of accounts that describes the behaviour of the household sector in relation to consumption, disposable income and wealth. The ICW focuses on the micro-side of the economy, with four possible statistical units to measure the economic wellbeing of the population: persons, households, families and income units. The area of analytic interest is broader than the Eurostat central focus on production, with emphasis on how economic resources are mobilised within households and affect the different variables of household income, consumption, saving and wealth. Considerable work would be needed to further integrate the two systems. Integration would give better information on the dynamics of individual households, the household sector and the linkages to the market economy.
The Netherlands approach
23.166 The Netherlands Central Bureau of Statistics started the development of satellite accounts of household production in 1991, using data from their national TUS conducted in 1987. Another TUS was conducted in 1998 and the data from that TUS are to be incorporated in the development of a System of Economic and Social Accounting Matrices and Extensions (SESAME), a form of a social accounting matrix (SAM). Traditionally, SAMs have been applied to specific types of analysis, focusing on causes and consequences of various aspects of inequality among household groups.
23.167 A SESAME is a 'core' SAM that has associated satellite tables and it provides a set of monetary and non-monetary macro-indicators potentially encompassing social, economic and environmental change. Such an integrated set of satellite tables can show:
- various stocks underlying the SAM flows, such as size and composition of the population by household group (including the potential labour force), production capacity by industry and the possession of assets (e.g. agricultural land, consumer durables and financial assets) and liabilities (e.g. external debts) by sub-sector;
- a decomposition of (changes in) values into (changes in) volumes and prices: this refers not only to products but also to various categories of labour services, and to fixed capital formation by industry;
- related non-monetary socioeconomic indicators, such as life expectancy, infant mortality, adult literacy, nutrient intake, access to (public) health and education facilities, and housing situation by household group; and
- some re-routings (e.g. final consumption by household group paid for by government and non-profit institutions serving households).
23.168 The Dutch system utilises an extra layer of operational principles to define the framework of its SAM for the household economy. In addition to defining productive activities by utilising the third person criterion (Chapter 3), it also defines productive activities in terms of formal and informal activities. The operational principle used is as follows:
23.169 Informal activities are productive activities which do not contribute to the national income as currently defined, and in which unpaid labour is involved.
23.170 When these principles are operationalised into a SAM there is a consistent representation of both the production processes and the income distribution and income spending processes. The system makes explicit the linkages between the formal and informal economies in terms of production and income generation and distribution and has entry points for data on fixed capital and consumption of fixed capital in the informal economy.
23.171 A key feature of this system is that goods and services in the informal sector are not always given a monetary valuation. The SAM is split up into two parts, making the module independent from the valuation of informal labour. The first part shows all transactions, expressed in monetary value, with the value of informal labour as zero. In the second part, all informal transactions are expressed in informal labour equivalents, such as working years, derived from the TUS. The Dutch see this framework as allowing formal and informal labour to be merged without disturbing the consistency in valuation. Various kinds of multiplier analyses can be applied where pricing is not a prerequisite. Future extensions will include informal fixed capital formation and a further disaggregation of labour by type, for example, by education level or position within household. Any number of disaggregations and micro-economic analyses could be made if the data were available, for example, data by household type. At this stage the framework is in place but very few of the cells have been developed.
Production boundary and unpaid work
23.172 In the 2008 SNA, the 'general production boundary' is defined in paragraph 6.24 as encompassing all activities 'carried out under the control and responsibility of (institutional units) that use inputs of labour, capital and goods and services to produce outputs of goods and services'. Most unpaid work fits within this definition. The production boundary used in the 2008 SNA is more restricted than the general production boundary. Production is defined in paragraph 6.27 as excluding the value of most unpaid work and as comprising:
- the production of all goods and services that are supplied to units other than their producers, or intended to be so supplied, including the production of goods or services used up in the process of producing such goods or services;
- the own-account production of all goods that are retained by their producers for their own final consumption or gross capital formation;
- the own-account production of knowledge-capturing products that are retained by their producers for their own final consumption or gross capital formation but excluding (by convention) such products produced by households for their own use;
- the own-account production of housing services by owner-occupiers; and
- the production of domestic and personal services by employing paid domestic staff.
23.173 Therefore, the 2008 SNA excludes from production all own-account production of services (which are the equivalent of 'unpaid household work') within households other than services produced by employing domestic staff and housing services produced by owner-occupiers. The 2008 SNA also omits from production the value of volunteer and community work that is provided free by householders to non-profit institutions or other households. The value of this work is not included in the costs of production of the recipients of the services generated by the unpaid work.
Definition and scope
23.174 A prerequisite for the measurement of total unpaid work is a satisfactory definition of what constitutes such work. The boundary between productive and non-productive activity is not clearly distinguishable in many cases. For example, the distinction between unpaid work and leisure is often very difficult to draw.
23.175 A widely accepted principle for determining the scope of total unpaid work is the 'third person' or 'market replacement' criterion originally stated by Reid in 1934, and re-quoted by many writers:
23.176 Household production consists of those unpaid activities which are carried on, by and for the members, which activities might be replaced by market goods or paid services, if circumstances such as income, market conditions and personal inclinations permit the service being delegated to someone outside the household group.¹¹⁵
23.177 Under this criterion a household activity would be considered as unpaid work if an economic unit other than the household itself could have supplied the latter with an equivalent service.
23.178 Arguments can be made for and against the inclusion of some of the activities that would qualify as unpaid work by applying Reid's 'third-party' criterion. Many household activities that meet the Reid criterion, for example cooking and shopping, could be considered leisure activities in a number of circumstances. In the Australian studies, travel to/from work has been excluded from unpaid work because it is not possible to hire someone to travel to work on one's behalf and it is also clearly associated with paid employment rather than household production. Work done from home in relation to paid employment (for example, telephoning clients) which is unpaid but frequently a necessary part of the job, has been classified with paid activities and excluded from estimates of unpaid work. The unpaid assistance provided by relatives and others in family businesses has also been excluded, as the value added by such activities is already included in production in the national accounts.
23.179 Caring for others, for example playing with children, from some perspectives is a debatable inclusion in unpaid household work, even though it satisfies the third person criterion. Individuals perceive the status of these activities differently. Some people would view the raising of children as unpaid work, while others would view it as something more akin to leisure. Some would argue that these caring activities should not be classified as work or leisure but something else—they are activities that satisfy biological and cultural codes of behaviour to ensure desirable outcomes for the whole of society. Despite these reservations, the Australian studies include caring in the scope of unpaid household work. The ABS continues to recognise that the distinctions between paid work, unpaid work and leisure are still subject to world-wide debate and refinement.
23.180 In summary, unpaid work is defined in the Australian studies as comprising unpaid household work and volunteer and community work. Unpaid household work consists of domestic work about the house, childcare and shopping and associated communication and travel. The following list gives a broad indication of the activities included under various categories of unpaid work.
- domestic work has been classified into broad groups as follows:
- food preparation and clean-up: includes the cooking and serving of meals, and washing dishes;
- laundry and clothes care: includes washing, ironing, mending and making clothes;
- general housework: includes cleaning the bathroom/toilet, vacuuming, dusting and tidying;
- grounds and animal care: includes gardening, pool care and feeding and tending to animals;
- home maintenance: includes repairs or improvements to the home, equipment, and motor vehicles and chopping wood; and
- household management: includes paperwork, bills, budgeting, organising, packing, selling household assets and disposing of rubbish.
- childcare – includes the physical, emotional and educational care of children and general interaction with, and supervision of, children;
- shopping – includes the purchasing of a wide range of goods and services for people in the household - purchasing durables and consumer goods and purchasing repair services, administration services, childcare, domestic and gardening services etc.;
- volunteer and community work – includes the physical care of adults, doing favours for others and active involvement in various forms of unpaid voluntary work; and
- all communication and travel associated with unpaid work is also included within the scope of unpaid work.
23.181 Two basic approaches to measuring unpaid work are identified: the 'direct' or 'output' method; and the 'indirect' or 'input' method. The first method involves the measurement of output by direct observation of prices and requires data on the quantities of services produced. This method is considered to be conceptually superior because it adopts the same approach as that as used to value market production and is therefore appropriate for comparisons with national accounting aggregates. In general, data to apply the output method are not available and the ABS, like most statistical agencies, has used ‘indirect' or 'input' methods to measure the value of unpaid work.
23.182 'Indirect' or 'input' methods involve valuing output in terms of the cost of inputs and require information about the time spent on household work which, in Australia, is provided by TUSs. It is similar but not identical to the approach adopted in the 1993 SNA for valuing other non-market output, for example, non-market services produced by government. However, non-market output is valued using all relevant costs of production. In valuing unpaid work, the ABS and most other practitioners use only labour inputs. There are two broad approaches to this application of the input method:
- The market replacement cost approach: that is, what it would cost households in wages to hire others to do the household work for them. Three variants of this approach are:
- individual function replacement cost approach;
- housekeeper replacement cost approach; and
- replacement cost hybrid approach.
- The opportunity cost approach: that is, what household members would have earned in wages had they spent the same amount of time on paid work as actually spent on unpaid work. Two variants of this approach are:
- gross opportunity cost approach; and
- net opportunity cost approach.
23.183 The ABS recommends the replacement cost approaches in preference to the opportunity cost approaches. However, estimates based on opportunity cost have continued to be derived to provide data that can be compared with opportunity cost estimates produced in the past or by other countries.
Replacement cost approach
Individual function replacement cost approach
23.184 The individual function replacement cost approach assigns values to the time spent on unpaid work by household members according to the cost of hiring a market replacement for each individual function. Thus, for example, time spent on cleaning is valued using a rate of pay for commercial cleaners, and time spent on child minding is valued according to the rate of pay for childcare workers. Use of this method is based on the key assumption that household members and market replacements are equally productive in their work activities.
23.185 It is not easy to determine an appropriate market rate of pay for household activities because commercial rates may embody a level of skill, responsibility or capital not required or reflected in household work.
23.186 The estimates derived using the replacement cost approaches will underestimate or overestimate the contribution of unpaid work to GDP depending on the relationship between the productivity of households and the market sector. If households and market producers are equally productive, that is, if they have the same average output per hour, the replacement cost approaches undervalue unpaid work by ignoring the contribution of non-labour inputs (e.g. capital). If households are more productive, the replacement cost approaches further understate the value of unpaid work because a household will do more work in a given time than a replacement would. If, on the other hand, households are less productive, (if they have, say, access to less capital or technology), the value estimates will be too high because they will be derived by multiplying market wages by the longer time that will be taken by households to do the same amount of work.
23.187 Two questions concerning the choice of an appropriate average wage concept are:
- Whether gross or net wages are most appropriate?
- Whether actual or paid working time should be used?
23.188 In the Australian compilations for 1992 and 1997, a gross wages concept, weekly ordinary time earnings, was preferred.
23.189 It could be further argued that total labour costs should be used, including employers contributions to superannuation, fringe benefits and workers compensation schemes. However, such data are not available in Australia by occupation on a per hour per employee basis. For this reason estimates of unpaid work including such additions to gross wages have not been calculated.
23.190 Regarding use of actual or paid working time, the latter is determined by law or collective agreements, and includes paid holidays and paid sick leave. Actual working time refers to the time spent actually working and includes paid and unpaid overtime but excludes public holidays and weekends (except in cases where a worker does work at those times).
23.191 In Australian studies the concept of paid working hours was used. Hourly wage rates were obtained by dividing weekly ordinary-time earnings by ordinary-time hours paid for. (Ordinary-time excludes overtime.) 'Ordinary-time hours paid for' refers to employees' standard or agreed hours of work that are paid at the ordinary-time rate. It includes stand-by or reporting-time hours that are part of standard hours of work, and any part of annual leave, paid sick leave or long service leave taken during the reference period.
Housekeeper replacement cost approach
23.192 The housekeeper replacement cost approach values the time spent on unpaid household work by household members according to the cost of hiring a housekeeper to undertake the relevant tasks.
23.193 The key assumption underlying this approach is that household members and housekeepers are equally productive in performing household work, which may or may not be true. For example, a housekeeper is likely to be more productive at cleaning than a household member who may also be looking after small children. Alternatively, a housekeeper may clean more quickly but less thoroughly than the household member. Use of this approach also assumes that there is a well-established labour market for persons who undertake all household tasks, which is not the case in Australia in the 1990s.
23.194 In both the 1992 and 1997 estimates, a female wage rate for domestic housekeepers was used as there was no male wage rate available. The tasks identified in the category included:
- preparing, cooking and serving meals and refreshments;
- purchasing food and household supplies;
- washing dishes, kitchen utensils and equipment, sweeping and washing floors and vacuuming carpets, curtains and upholstered furnishings;
- dusting and polishing furniture, and cleaning mirrors, bathrooms and light fixtures; and
- washing and ironing garments, linen and household articles.
23.195 In the 1992 and 1997 estimates, the housekeeper wage rate was used to value all household tasks including those that would not normally be undertaken by a housekeeper.
23.196 The housekeeper replacement cost approach is only applicable to the derivation of the value of unpaid household work and does not apply to the derivation of the value of volunteer and community work. Estimates of the value of total unpaid work under a housekeeper replacement cost heading are derived by adding estimates of unpaid household work derived using the housekeeper replacement cost approach to estimates of volunteer and community work derived using the individual function replacement cost approach, based on the persons wage rate.
Replacement cost hybrid approach
23.197 Under this approach, the housekeeper wage rate was applied to those tasks normally carried out by a housekeeper (as described in the previous section). The value of tasks not normally undertaken by a housekeeper was estimated using the wage rates employed in the individual function replacement cost approach. The hybrid approach would appear to be appropriate given that Australians typically hire housekeepers to clean house interiors, manage laundry and occasionally prepare meals while they hire specialists to carry out childcare, household maintenance and gardening tasks. The hybrid approach was not used in the compilation of the published estimates for 1992.
Gross opportunity cost
23.198 The gross opportunity cost approach values unpaid work in terms of the earnings assumed to be foregone by householders when they devote time to unpaid work rather than paid employment. The approach assumes that the value of time spent doing unpaid work at home equals its 'opportunity cost' elsewhere, i.e. the valuation of the next best alternative use. The assumption is made that the worker has given up paid work to perform unpaid work and that its value per hour is equal to the individual's marginal hourly wage in the market. In other words, to do an extra hour of unpaid work, an hour of paid (market) work is given up. However, in practice, the total time spent on unpaid work is multiplied by the average wage applicable to relevant groups in the population.
23.199 There are many problems with this approach. Some reservations are outlined below:
- Labour market structures – the gross opportunity cost approach does not represent the way the choice between paid and unpaid work is made. Most workers have limited choice in the short run regarding the hours they have to work and few have the option to refuse overtime.
- Employment status – this method does not hold up well when patterns of labour force participation other than a rigid fixed-hours working week are considered.
- 'Psychic income' – a probably unquantifiable but theoretically precise valuation would take account of the worker's net psychic income from doing unpaid work and from doing paid work, i.e. where the net psychic benefit equals the psychic benefit from doing unpaid work minus the psychic benefit from paid employment.
- Relevance of market wage rates for individual workers – the question is how is the 'foregone wage' to be determined when an unpaid household worker has had no market employment and therefore an indeterminable potential wage?
23.200 Opportunity cost measures tend to be higher than those for the housekeeper replacement cost approach because wages for professional housekeepers are lower than the economy-wide average wage which is used for the opportunity cost approach. In view of the above discussion, the opportunity cost approach will give useful results only if very strict and probably implausible assumptions apply:
- at the margin, time devoted to unpaid work precludes market work;
- the value of time at the margin is gross hourly wages; and
- the average potential hourly earnings of the not employed are equal to the average hourly earnings of the employed.
23.201 In the Australian studies relating to 1992 and 1997, estimates of unpaid work using the gross opportunity cost approach have been produced using average male and female wage rates, and also using the persons' average wage rate. The ABS regards the gross opportunity cost approach as the least appropriate of the estimation methodologies.
Net opportunity cost
23.202 The decision to undertake paid work as an alternative use of time to unpaid work could reasonably depend on the remuneration (wages and salaries, superannuation, and fringe benefits) after tax and any work-related costs. The net opportunity cost approach recognises this and recommends valuation of unpaid work at the after-tax hourly wage rate less work-related expenses plus income by way of employer costs of superannuation and fringe benefits.
23.203 The rationale behind this approach is that the unpaid worker will be equating the value of doing unpaid work with the net benefit of working in paid work conferred by this 'adjusted' hourly wage rate. In the Australian context, estimates of the wage rate applicable to a net opportunity cost valuation are derived by subtracting from average annual ordinary time earnings, the relevant taxes and levies payable and work-related expenses, and adding to the result the imputed employer on-costs relating to superannuation and fringe benefits and then converting the final result to an hourly wage rate.
23.204 The calculation of the net opportunity cost wage rate is really an attempt to find the appropriate and most realistic net wage rate. Ideally, a number of other factors should also be taken into account, if it were possible to measure them. For example, there is the question of whether tax rebates and social security benefits should be considered. In the Australian context, these include family allowances, family income supplements, medical insurance rebates, and a variety of means-tested welfare programs. Indeed, the net opportunity cost of working in the paid work force could well be negative in some cases.
23.205 The preparation of the 1997 estimates of total unpaid work presented in this paper required the following sets of data:
- estimates of average time spent on household work obtained from the 1997 TUS;
- population estimates from the Census of Population and Housing;
- appropriate wage rates from the Survey of Employment, Earnings and Hours as well as the Labour Force Survey; and
- work related expenses from the Household Expenditure Survey.
23.206 The main limitations of the unpaid work approach are:
- the contribution to the value of household production that comes from other inputs (e.g. intermediate consumption and capital) is not captured;
- it cannot provide information on the labour productivity of household production;
- it cannot be used to analyse whether households are more efficient in their production than comparable market units;
- it does not take into account the joint production of services through simultaneous or parallel uses of time; and
- a choice is required among multiple wage rates and valuation methodologies, each of which have their limitations.
23.207 With regard to the last point, the pros and cons of the various approaches are well summarised in a 1999 Eurostat document entitled, Proposal for a satellite account of household production.¹¹⁶ (This proposal is discussed in more detail in the section 'The Eurostat Proposal'.) The document provides the broad consensus of national accountants in Europe about the preferred method of valuation of the labour input into household production. Of the possibilities, Eurostat recommends that the housekeeper replacement cost method is the most appropriate method to use to value household labour. The reasons cited include:
- the nature of the work performed by a housekeeper is rather similar to the nature of housework performed by a household member;
- housekeeper productivity is similar to that of the householder, as regards the performance of several household activities simultaneously, the quality of household equipment used and the amount of intermediate consumption involved; and
- the method of valuation is simple and straightforward.
23.208 A potential problem with the housekeeper replacement cost method is that a housekeeper does not perform all the tasks undertaken in households, such as household management, home maintenance, servicing vehicles and volunteer work. Using this approach then could possibly see an undervaluation of the labour input to household production unless those tasks not typically undertaken by a housekeeper were also included in the valuation on the basis of specialists' wages (in effect, utilising a hybrid of the housekeeper replacement cost and individual market replacement cost methods).
23.209 As to the issue of gross or net wages Eurostat recommends that gross wages, which include income tax and social security contributions paid by the employer and employee, be used, although it acknowledges that net wages do have certain advantages from a theoretical point of view. However, net wage statistics are generally not available on an occupational basis. (This is one of the reasons that Australia uses the gross wage concept in its valuation of unpaid work using the replacement cost methods).
- Goldschmidt-Clermont, L. (1984) Unpaid Work in the Household. Geneva: International Labour Organisation (ILO), page 4; see also Reid, Margaret (1934) Economics of Household Production. New York: John Wiley.
- Eurostat (1999), Proposal for a Satellite Account on Household Production: 9/1999/A4/11.