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SPOTLIGHT ON THE NATIONAL ACCOUNTS: UNPAID WORK AND THE AUSTRALIAN ECONOMY
The value of work associated with the production of goods by a household for their own consumption, and the value of dwellings services produced by owner-occupiers, is excluded from the scope of unpaid work in this paper as it is accounted for in the ASNA, and its measure of Gross Domestic Product (GDP).
The activities that are defined as volunteer and community work in this paper are outlined in table 2. These activities must be provided free of charge to others.
Production boundary in 2008 System of National Accounts and Unpaid Work
Although most unpaid work relates to activities that constitute production in a broad sense, international statistical standards as outlined in the System of National Accounts 2008 (2008 SNA), to which the ASNA adheres, have defined the types of unpaid work covered by this paper as falling outside the conventional definition of production.
More precisely, the 2008 SNA provides a general definition of production, but recommends applying a more restricted definition when compiling GDP estimates. The general production boundary is defined by the 2008 SNA as encompassing all activities carried out under the control and responsibility of an institutional unit that uses inputs of labour, capital, and goods and services to produce outputs of goods or services. Most unpaid work falls within this definition. The more restrictive 2008 SNA production boundary definition however, excludes all own-account production of services within households (which are the equivalent of unpaid household work as defined in this paper), other than housing services produced by owner occupiers and the production of services by employing domestic staff. 2008 SNA production boundary also omits from production the value of services produced by volunteer and community work that is provided free by households to non-profit institutions or to other households.
International statistical standards exclude unpaid work from the conventional definition of production primarily due to conceptual and measurement difficulties. However, the 2008 SNA does recognise the value in measuring unpaid work. 2008 SNA recommends that the boundary of production could be extended by incorporating unpaid household work, and volunteer and community work in so-called ‘satellite accounts’. These are accounting statements which are separated from, but consistent with, the existing System of National Accounts. The compilation of a household satellite account would provide supplementary information, which could be used in conjunction with the core accounts, to give an additional dimension to economic analysis in regards to the household as an individual sector, and its relationship with the other sectors of the economy.(footnote 1) For more information see paragraph 7 of the explanatory notes.
Further support for the compilation of unpaid work statistics is found in the 2009 report by the Commission on the Measurement of Economic Performance and Social Progress (generally referred to as the Stiglitz-Sen-Fitoussi Commission). The Stiglitz-Sen-Fitoussi Commission advocates for statistics to be compiled based on broader measures of production which includes household economic activities, as this would allow for better measurement of economic well-being. It argues that as household production is economically important, yet is excluded from current statistical measures of production, it results in the misrepresentation of actual living standards and neglects important shifts in economic production between the household and market sectors. The report states that estimates of unpaid work would complement traditional measures of economic performance (such as GDP) in producing more representative indicators of actual economic and social progress. This in turn would aid in the better design and assessment of economic policies.
Considerable research has been undertaken internationally to determine the best methodology for valuing unpaid work. While there currently exist no internationally agreed statistical guidelines specifying how to measure unpaid work, two basic valuation approaches are identified: an output approach and an input approach.
The output approach would see unpaid work valued directly. The output of household production would be valued by multiplying the volume of household output for different activities by the market-equivalent prices for each activity. As the data requirements for an output based approach are not readily available for most statistical agencies, including the ABS, unpaid work studies are more commonly conducted using an input approach.
The input approach values unpaid work at total costs of production. Household unpaid work would be valued as the sum of all its inputs; value of labour, intermediate consumption, and capital cost. However in practice, estimates of unpaid work are typically compiled using only the labour input component, as this is more easily achievable. Measuring unpaid work based purely on the value of unpaid labour is the method most frequently used.
In this paper, separate estimates of the value of unpaid work have been compiled. All estimates follow the input approach, based on the inputs of labour only, and are based on the same basic equation:
The population estimate used in this paper is defined as the civilian population aged 15 years and over, excluding those living in special dwellings or very remote and sparsely settled parts of Australia.
The value of unpaid work estimates diverge only in regards to the wage rates applied, and can be classified into two groups:
Within the market replacement cost approach, three separate estimates are distinguished:
Within the opportunity cost approach two separate estimates are compiled:
Both market replacement cost and opportunity cost methods are compiled using ABS data, on wage rates based on the Survey of Employee Earnings and Hours, and information on time spent by activity from the Time Use Survey. Estimates can be computed at an aggregate level, i.e. per person, or at a disaggregated level, for males and females separately. In this paper, valuations are based on male and female, and person wage rates. For each valuation method estimates that are identified as being compiled using male and female wage rate are valued by applying male wage rates to activities performed by males, and a female wage rate applied to activities performed by females. Estimates identified as being compiled using person wage rates are valued by applying the same person wage rate to activities conducted by men, and to those conducted by women. There are two main reasons why estimates based on the same valuation approach differ when calculated using person wage rates versus a male and female wage rates:
2. A difference in time spent on unpaid work activities conducted by males, and by females.
A more detailed description of these methods, their inherent advantages and disadvantages, and the data sources used, can be found in the explanatory notes of this paper.
Of the above mentioned methods, some have been found to be more preferable than others. The ABS considers the individual function replacement cost approach based on male and female wage rates, as the most appropriate measure of unpaid work for the Australian context. In comparison, in the 2003 publication Household Production and Consumption: Proposal for Methodology of Household Satellite Accounts, Eurostat recommends the housekeeper replacement cost method. The publication further states that the opportunity cost method is widely rejected by researchers as a suitable measure of household production in the National Accounting framework, an opinion also held by the ABS. Nevertheless, opportunity cost figures have been produced in this paper to allow for international comparison and to illustrate the impact the choice of valuation method has upon the results.
VALUE OF UNPAID WORK IN AUSTRALIA, 2006
The value depends on the methods and type of unpaid work performed
Various estimates of the value of unpaid household work, volunteer and community work, and total unpaid work conducted in 2006 are shown in table 3 below. The results vary considerably depending on the valuation method used.
The estimates of total value of unpaid work range from $416 billion to $586 billion. Table 3 illustrates that if unpaid household work, and volunteer and community work were to be included in the ASNA production boundary, GDP for 2006 would increase by a minimum of 41.6% (using the housekeeper replacement cost method), and a maximum of 58.7% (using the gross opportunity cost method based on a person wage rate).
Unpaid household work is the main contributor to the value of total unpaid work. This result is due to a time, rather than wage, factor. For although wage rates applied to volunteer and community work are consistently higher, or equal to household work for each valuation method, considerably more time is spent on household work (25.23 hours per week) as opposed to volunteer and community work (2.61 hours per week).
The results of both opportunity cost methods are consistently higher than the estimates produced using the market replacement valuation methods. This is seen in the results for all three years compiled in this paper and also consistent with the international findings discussed later. This is because the market replacement cost methods uses wage rates of occupations based on unskilled labour, therefore lower wage earners. The two opportunity cost methods are based on the average wage rate of all occupational groups in the economy, which is upwardly impacted by the wage rates of highly skilled professions.
The value depends on the scope of the activities included
Defining certain activities as productive, and therefore within the scope of unpaid work, is a contentious issue. Indeed, whether an activity is 'work' or more suitably defined as leisure, can be debated. Activities contain elements of both to a greater or lesser extent depending on the type of activity under consideration. For example, a person outside the household unit can be employed to perform volunteer care for sick, frail, disabled adult or child - which qualifies as unpaid work under the third party criterion. In comparison, activities such as a grandparent spending time with their grandchild, or organising and attending rehearsals for a school play, both contain strong leisure components. In practice, people generally do not hire someone else to undertake such activities on their behalf, therefore failing the third person criterion. Defining the scope of activities included in unpaid work studies and the treatment of such activities that may border on leisure, impacts substantially on the estimates produced.
Table 4 shows the contribution of individual activities to the total value of unpaid work, and the impact the inclusion of each activity into the production boundary would have upon GDP. The figures in this table, and the accompanying analysis, are based upon results compiled using the individual function market replacement cost method, using male and female wage rates. Similar conclusions can be drawn from the figures compiled using other methods in terms of percentage contribution to GDP and activity contribution to total value of unpaid work.
The results show that if the production boundary was extended to include only unpaid household work, it would have greater impact upon the value of GDP (39.2%) than if volunteer and community work was included (4.3%).
Despite food and drink preparation and clean up having one of the lowest activity wage rates ($17.92 per hour), it is the largest contributor to the total value of unpaid work (19.5%) due to the fact the largest portion of time (5.64 hours, 20.3% of total time) is dedicated to this activity weekly. Communication associated with volunteer and community work contributed the least in terms of value ($368 million) and time (0.02 hours) to total unpaid work despite having one of the highest wage rates ($23.22).
Changes in unpaid work, 1997 and 2006
Table 5 shows the percentage change in value of unpaid work between 1997 and 2006 for the different estimation methods, in terms of average wage rates, value of unpaid work, and ratio of total value of unpaid work to GDP.
According to all estimation methods, the value of total unpaid work increased significantly between 1997 and 2006. This increase is due to large percentage growth in wage rates (ranging between 35.2% to 52.0%) in addition to increased time spent on unpaid work. Total average weekly hours spent on unpaid work increased 6.7%.(footnote 2) Also contributing to this result was a 14.7% growth in the population figure used in this paper, from 14.0 million in 1997 to 16.1 million in 2006.
The lowest increase in the total value of unpaid work in percentage terms (65.5%) was recorded using the individual function replacement method based on person wage rate. The highest increase was recorded using the housekeeper method (86.1%). The growth in the housekeeper method was largely the result of a 52.0% wage increase. Despite this significant increase in wage rate, the housekeeper replacement cost method recorded the lowest total unpaid work value for 2006 ($416 billion) in addition to the lowest wage figure ($17.59 per hour), as shown in table 3.
The two opportunity cost approaches show greater positive percentage change than the market replacement cost approaches. This is driven by the fact that the average wage rate for the economy grew by a larger amount than the wage growth experienced by the unskilled occupation groups that make up the market replacement cost approaches. The exception to this trend is the housekeeper replacement cost method.
Despite an overall increase in value of unpaid work between 1997 and 2006, decreases are seen in all but the housekeeper replacement cost methods in terms of ratio of total value of unpaid work to GDP. This is due to the fact that GDP increased by 79.3%, from $557 billion in 1997 to $998 billion in 2006, which is greater than the increase seen in the value for unpaid work for all the methods, excluding the housekeeper replacement cost method (86.1%).
In 2011, the Organisation for Economic Co-operation and Development (OECD) published the statistical working paper Incorporating Estimates of Household Production of Non-Market Services comparing estimates of unpaid work for 26 OECD countries and China. Graph 1 below has incorporated the 2006 estimates produced in this paper for Australia, with the findings published by the OECD, in relation to value of unpaid work as a ratio to GDP for each individual country.(footnote 3)
GRAPH 1. VALUE OF UNPAID WORD AS A PERCENTAGE OF GDP
Source: Incorporating Estimates of Household Production of Non-Market Services, OECD Statistical Working Papers, October 2011, and ABS estimates based on Time Use Survey, Survey of Employee Earnings and Hours, Labour Force Survey, Australian System of National Accounts.
Note: Due to Time Use Survey data availability, the estimates presented are based on the most recent year available for each country, as of October 2011. This has resulted in estimates based on data from a range of years, from 1998-99 through to 2008-09. For a full list of countries and their corresponding Time Use Survey used, please see paragraph 13 of Incorporating Estimates of Household Production of Non-Market Services.
The results show that unpaid work reported by the OECD countries and China, as a percent of GDP, range between 15% (Canada) and 43% (Portugal) using market replacement cost approach, and 32% (Hungary) and 68% (United Kingdom) using the opportunity cost approach.
The relative ranking of countries changes considerably depending on which valuation method is used. The most extreme example of this is Slovenia. In ranking countries based on the market replacement cost, Slovenia is the sixth highest ranking country (31% of GDP), but when rankings are compiled using the opportunity cost method, it is the second lowest country (33%).
The value of unpaid work conducted in Australia relative to GDP ranks second highest overall, using either of the valuation methods.
Despite the large variation in estimates depending on which compilation method is used, the results indicate that across the board unpaid work represents a notable percentage of each nation’s productive activity as currently captured by the official System of National Accounts. Should the production boundary be expanded to encompass unpaid work, each country’s GDP would increase by a minimum of 15%.
Unpaid work conducted by households represents important economic activity that occurs in Australia every year. In 2006, the value of unpaid household work, and volunteer and community work ranged from $416 billion to $586 billion, which represents 41.6% to 58.7% of GDP for that year. In terms of unpaid work relative to GDP, these results place Australia at the higher end of the international standings.
Estimates of both level and growth of unpaid work vary significantly depending on the valuation method used. Additionally, the activities included within the scope of unpaid work may lead to considerable differences in results. Therefore this paper not only demonstrates the importance of unpaid work in Australia and other countries, but it also shows the need for agreement upon a harmonised definition and valuation methodology, when conducting such analysis.
ABS (Australian Bureau of Statistics) 1992, Occasional Paper: Measuring Unpaid Household work, 1992, cat. no. 5240.0, ABS, Canberra.
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Footnote 1. To date, the ABS has not produced a household satellite account. A detailed discussion of the topic can be found in Australian System of National Accounts Concepts, Sources and Methods, 2013 (cat. no. 5216.0), para. 23.108 – 23.151. However, the ABS has produced a non-profit institutions satellite account. The Australian National Accounts: Non-Profit Institutions Satellite Account (cat. no. 5256.0) (NPI satellite account) provides a measurement of voluntary work conducted within non-profit institutions, which is also captured by the value of volunteer and community work in this paper. The value of voluntary work estimates in the NPI satellite account are lower than the volunteer and community work estimates presented in this paper primarily because the scope is narrower. There are also differences in methodology and source data. The ABS has released two NPI satellite accounts, in respect to 1999-2000 and 2006-07. A third edition is planned to be released on 30 June 2014, in respect to 2012-13. <back
Footnote 2. There are some differences in the coding rules between the 1997 and the 2006 Time Use Surveys that may have some impact on the comparisons made between unpaid work estimates for the two years. For more detailed information on coding rule changes, see the ABS publication Time Use Survey: User Guide, 2006 (cat. no. 4150.0) - Coding Rule Changes. <back
Footnote 3. The figures quoted for Australia in the table are the 2006 estimates taken from this paper compiled using the housekeeper replacement cost method for the market replacement cost approach, and the gross opportunity cost method based on person wages for the opportunity cost method. These particular results were selected as they are the most consistent with the estimates and methods used by the OECD in compiling their figures. Despite best efforts being made to ensure estimates are on a similar basis, it should be noted that there are scope and methodological differences between estimates compiled in this paper and those compiled by the OECD. <back
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