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Putting the ‘domestic’ in GDP

  • Published at 08:08 pm November 11th, 2019
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Why unpaid household labour isn’t included in the GDP

Sanemand  ManusherJonno Foundation tell us that unpaid household labour should be included in GDP. After all, such work is usually done by women and is also essential -- we should be counting the female contribution as well as the male in that form of paid work.

Women do, after all, hold up half the sky.

Having said that, there are some uncomfortable truths to relate about how we should do that and the difference it would make. While the work that many women do is important, it isn't, in fact, all that economically valuable. 

Which is a bit of a problem if we're hoping to add the results of that work to GDP and so show how valuable women's labour is to us all.  

We should start by noting that this isn't a new problem -- it was pointed out by Simon Kuznets when he first invented the concept and calculation of GDP. It doesn't include things that don’t have a market value and a market price assigned to them. 

Leading Keynes to joke that when a man marries his housekeeper, the GDP declines -- what was formerly being paid a wage now is not, even though the same activities are carrying on.

But say that we desire to add in that value of that domestic and caring labour. We then face the problem of “well, what do we value it at?” We’ve not got a market price, as with other forms of labour that we do add to GDP. We’ve not got a market price of the output. So, we need to invent some valuation method.

Fortunately, this very question was looked at by the Sarkozy Commission which included Amartya Sen among its luminaries. He is Bengali and a Nobel Laureate so we can claim him as illumination on this specific local point, no? 

The answer was that domestic labour should be valued at the “undifferentiated labour rate” which will usually be the minimum wage. No, not the minimum wage in the RMG or any other specific sector. 

But what is the amount that someone with no training, no specialty, gets from a simple job. Closer to what a rickshaw driver gets, or a chai wallah, than the RMG factories pay.

This is, of course, a very small sum. And there will be a certain resistance to valuing the work of our own wives and mothers at this small sum. Yet it is the economically appropriate number to use.

As Adam Smith pointed out -- to the extent that we call this sort of growth “Smithian” growth -- the secret to everyone getting richer is the division and specialization of labour. It's that example of his of the pin factory. 

By doing only one of 10 or so tasks and then combining, with nine others equally specializing, then the group as a whole can produce 10 times or 20 times the number of pins that they could produce in aggregate if each tried to master all 10 processes and work alone.

That makes consumers rich as we get many more pins out of the same human labour, that makes the pin-makers richer as they get paid some portion of that extra value being generated.

That is the division and specialization of labour increases labour productivity. We then trade the resultant production. We specialize in bread, or pins, or accounting, selling our product and buying in the specialities of others. It's that very specialization which increases the total amount to be shared among the population, making us richer.

GDP is the measure of the value added in the economy. GDP therefore rises if we all divide and specialize the labour, increasing output and possible consumption.

So, what is the one thing that isn't happening in that unpaid household labour? Much division and specialization. Of course, some of it is happening, someone is staying home to do it, some other member of the household is out doing market work. 

But we are dividing and specializing between two people and, unless home life is very much more exciting than it is for most of us, only two people.

Out there in the market place we are dividing and specializing with 7 billion -- yes, we are, that's the same statement as Bangladesh is producing RMG for much of the world. And Bangladesh is producing no jet engines, while England is.

That is, that home labour is very unproductive. Two people can cook lunch, in a commercial kitchen for say 30 people. Two housewives will be cooking for their own children and no more. A nurse can care for how many sick children?

The mother staying at home will be caring for the one and only ill in her own family. The labour of one person is producing fewer lunches, less nursing care -- it is less productive.

Do note that absolutely none of this means that the mother wiping the brow of a fevered child is of low value. Despite the way many economists think about it, economics is not everything. But GDP is the economic value being added, unpaid household labour is of low value, therefore it must be recorded as such even if we do want to add it to GDP.

Because of this low valuation that we should apply to it, adding “women's work” to GDP doesn't in fact make much difference. A sad truth but a verity all the same. 

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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