Home Production Defined• Home production - purposeful activities performed in

individual households that result in goods and services that enable a family to function as a unit (Walker).

• Home production - unpaid activities which are carried on by and for the household members, which activities might be replaced by market goods and services, if circumstances such as income, market conditions, and personal inclinations permit the service to be delegated to someone outside of the household group (Reid).

Human Capital Investment in Home Production Skills

• Difficult to measure investment in home production skills because– no set description of the tasks involved– no easily identifiable financial rewards– investment is often done jointly with

consumption-oriented activities

– Watch I Love You, Mama

Examples of Investment in Home Production Skills

– Learning how to sew.– Learning how to use the internet to shop for

the “best buy.”– Learning how to cook.– Learning about financial investments.– Learning about gardening.– Learning about various parenting strategies.

The data suggest:• Since women do much more household work than

men, they are likely to see greater returns from acquiring such skills.

• Gender differences in household work patterns result in specialization of human capital investment.

• Decline in women’s housework over time suggests that the returns from such investments may be decreasing relative to other investment activities.

Why might women’s investment in household production skills be declining?

• Opportunity costs (in terms of potential market wages) of such investment have risen.

• Marginal benefits of such investments have declined because of– decline in the fertility rate– decline in the cost of purchasing market substitutes

(e.g., purchased housekeeping services, appliances, “fast” foods)

– decline in the expected length of time spent in a marriage (marrying later and higher probability of divorce)

Assessing the economic contributions of home production

• Approaching household work as an occupational choice

• Examine the “wage” implicit in the work that is done in the home by looking at the opportunity costs of men’s and women’s time

• Opportunity cost wage (2004 dollars):– Employed consumers: $15.67/hr

What is the value of household production?

• Calculate PVA– $15.67 per hour– 25 hours / week– 40 years– 3% discount rate– Use yearly compounding

• FV = (15.67)(25)(52) = $20,371 a year• PVA = $470,871

Conclusions• Household Work time has declined since 1900.• Concurrently, women’s investments in home

production skills have also declined (while investments in market skills have risen).

• Nonetheless, there continue to be substantial amounts of time spent in these activities and substantial economic contributions made to households when these activities are done (particularly for women).

Investment in Marriage Specific Human Capital

Percentage of Women Married by Age

27

6070

79

0102030405060708090

20 25 30 35

Age

%

Anthropologists argue that people marry because of...

• socialization• reproduction• sexual relations• economic cooperation (i.e., the sharing of

income and wealth)

Economic Value of Marriage

• Reduces the time and money devoted to searching for companionship

• increases total production output of the household by complementarity and substitutability of household and market production

• allows individuals to capitalize on economies of scale with respect to living arrangements

• sanctions having children

The “Marriage Market”

• Assumes that since marriage is voluntary, people marry only if they think they will be better off.

• Women and men search for mates until the point where the marginal gains expected from additional search are equal to the marginal costs of continuing to search.

What factors influence the marriage decision?

• Degree of benefits expected as measured by potential complementarity (less time spent negotiating compromises)– same values– same educational background– same religion– same ethnic group

What factors influence the marriage decision?

• Costs of continuing to search for a marriage partner– money spent on dates– time spent in dating activities– psychological costs

Decision Rule

– Individuals choose to marry when they perceive that the net benefits of marriage are at their highest point. This implies

• those with greater economic resources should marry before those with fewer economic resources

• there may be gains from specialization of function (e.g., bread winner - homemaker roles)

• recent gains in women’s market opportunities should make marriage look relatively less attractive

Marriage Specific Human Capital

• Resources that enhance the productivity and satisfaction of a particular household that could not be productivity and/or satisfaction enhancing to the same degree in another household. For example,– Learning food preferences so that only one person

has to do the shopping– Learning about and discussing preferences regarding

financial investments and risk– Having children

Implications...

– The longer a marriage lasts, the less likely it should be to end in divorce because of greater marriage-specific human capital

– Marriages without kids should have a higher probability of ending in divorce compared to marriages that produce children.

– Marriage-specific human capital falls when children leave home -- maybe an increase in divorces after kids grow up.

Percent Distribution of Divorces by Age at Marriage

31.7

36.4

14.8

7.64.4

2.32.9

0

5

10

15

20

25

30

35

40%

<20 20-24 25-29 30-34 35-39 40-44 45+

Age at Marriage

Cost-Benefit Framework Applied to Divorce

– Costs of staying in a marriage (benefits of divorce)• continued loss of independence (control over resource

allocations)• increased time spent in negotiating• forgone opportunities to date others

– Benefits of staying in a marriage (costs of divorce)• economies of scale in home production• emotional support• economic support

Decision Rule

• Spouses agree to divorce when the net benefits of divorcing outweigh the net benefits of remaining married. Implies... – As women invest more in market-oriented human

capital, relative gains from marriage (or staying in a bad marriage) will decline, thus raising the probability of divorce

– As fertility rates decline, marriage specific human capital falls, and the probability of divorce rises.

Divorces Rates Over Time

3.5

4.85.2 5 4.7

4.4 4.13.6

0

1

2

3

4

5

6

Rat

e pe

r 10

00 P

opul

atio

n

1970 1975 1980 1985 1990 1995 2000 2005

Year