The effect of omitting unpaid work from national accounts

Home is where the heart is. Most homemakers would also agree that home is where the work is. Traditionally the role of homemaker has been performed by women and is unpaid work. According to the Australian Bureau of Statistics the difference between paid and unpaid work is that the former is defined as activity that uses labour and other factors of production to produce goods and services for sale in the market, while the latter receives no payment as the majority of the services are not produced for the market.

Unpaid work is excluded from national accounting, resulting in bias of its economic value. This is quite ironic, considering the word economics comes from the Greek word oikonomous which means ’managing the household’. Of course, unpaid work also occurs outside the household but the bias remains. These activities are not negligible and are time consuming.

The need for a proper understanding of unpaid work has become increasingly important in the last 50 years, with the increase in labour force participation of women. Employment rates of women have risen from 11% in the early 1960s to over 65–80% in most developed countries, Australia presently being at 65.2%.[1] This has resulted in a commonality of women (especially those in developed countries) as well as a growing percentage of men, who try to combine both breadwinning and unpaid housework. This is also known as the ‘double shift’. This double shift requires proper management of time and responsibilities. It also renders those who try to accomplish it time-poor. According to the OECD Better Life Index, ‘Men in Australia, spend 172 minutes per day cooking, cleaning or caring, one of the highest scores across OECD countries but less than Australian women who spend 311 minutes per day on average on domestic work.’[2] That means women in Australia spend 846 hours more a year, or 16 hours more a week or 2.3 hours more a day, on unpaid work than men.

While this form of work is very present in society, it is not present in many modern day economic measures. This is because most models within modern economics are based on the assumptions of the economic man, homo economicus. This notion of the economic man describes a hypothetical individual’s motivation as making choices based on self-interest in a quest to maximise his utility. As stated by Adam Smith in The Wealth of Nations: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’

If homo economicus does indeed make choices in his life in this method, the above assumption should apply to all forms of production, paid or unpaid. The assumption though goes against most of the work done by unpaid women and men. Does a housewife or husband make dinner out of his/her own interest or, rather, out of a sense of duty or benevolence for the family he/she cares for? If it is fully or partly because of the last two reasons, the assumptions of the economic man do not hold up. The real question though is why is this unpaid work considered economically unimportant?

Using the example of childbearing and child care, no one can debate the importance of raising and rearing a child for society’s future economic capabilities. Investment of time in the future generation has great economic value towards potential productive output and quality of output, much in the same way as investing in infrastructure would have. A lack of ability to properly invest time in raising and rearing can have the opposite effect. Women within Australia still spend twice as much time as men performing child care. Women are also disproportionally the ones with the responsibility of elderly and family care.[3] This altruistic care helps both the one in care, who most likely receives better quality of care, but also reduces society’s economic burden and responsibility. Does replacing this unpaid work done by an empathic producer equal the value of the work being produced by a salaried worker? Probably not. Yet the addition of this salaried worker increases the value of GDP while the addition of the unpaid caretaker reduces it. This is as the famous economist John Hicks stated: ’If someone wants to lower GDP they should marry their cook.’ Economically, is society better off? Is the cook better off? Unpaid work cannot be ignored: it is socially and economically essential. Yet unpaid work goes against the assumptions for most economic modelling and is not included in GDP.

We therefore can expect macroeconomic national models and GDP to be inaccurate. According to the OECD publication, Understanding National Accounts, ‘[GDP] lies at the heart of the entire system of national accounts …’[4] Nevertheless it neither considers the supply and demand for unpaid non-market production nor the value and impact of output produced by households. Let us use the example of two households with the same income. One has only one member in paid work; the other has two. The first household has an economic and social advantage because a member is free to make the unpaid contribution to the household economy, yet both households are treated equally under national accounting.

National accountants have rejected the idea of including unpaid production within GDP. A supporting argument is that since the value of the work cannot be accurately estimated, it cannot be accurately included. Arguments about false statements regarding unpaid work are also presented. Another objection is that only market output should be included in GDP. Yet we include government consumption even though it is not a market transaction whereas unpaid work, also not a market transaction, is excluded. Regardless of these arguments, there is value in the unpaid work done. Using conservatively low wages, this value has been estimated to equal more than 50% of GDP in Australia.[5] Women do two-thirds of this work: thus exclusion of unpaid work severely disfavours them.

Because national accounts are considered for the application of public policy, this bias will exist in policymaking decisions. For policymakers requiring accurate information, all work should be important. If one does not understand the ramifications of a policy on both the paid and unpaid sector, gender inequality will remain. The United Nations Research Institute for Social Development states the presence of: ‘… a frequent lack of integration of gender analysis into the diagnosis of poverty. Generally gender has not featured as an issue in the macroeconomic and developmental policy analysis, or in the sections of Poverty Reduction Strategy Papers concerting the recommended poverty reduction strategy, resource allocation, or monitoring and evaluation.’[6]

While unpaid work is not the only cause of gender inequality and poverty, not having adequate macroeconomic measures of gender productivity outputs due to bias in that production works against proper targeting of poverty reduction strategies. According to UN Women, women account for 70% of the world’s poor. In Australia, 14% of women live below the poverty line.[7] Economic policy alone is unlikely to bring gender equality but failure to consider all aspects affecting it is sure to result in a continuation of gender inequality. At the heart of this is an epistemological economic problem. A proper economic representation of unpaid work, and an understanding of the importance and impact in the lives of those who accomplish it, is necessary for both public policy and economic policy. Without these, the status quo will only continue to disadvantage society as a whole.

References

[1] http://www.abs.gov.au/ausstats/[email protected]/Lookup/4125.0main+features1110Jan%202013

[2]OECD Better Life Index. OECD. OECD BLI. 2012. Web. November 27, 2012.

[3]“Gender Equality. Striving for Justice in an Unequal World”. United Nations Research Institute for Social Development, UNRISD. France: UNRISD, 2005. Print p.23

[4]Blades, Derek and Lequiller, François, eds. “Understanding National Accounts” OECD. Paris, France: Economica, 2006. Print.

[5]Blades, Derek and Lequiller, François, eds. “Understanding National Accounts” OECD. Paris, France: Economica, 2006. Print.P.112

[6]UNRISD, 2005, p. 24

[7]http://www.acoss.org.au/media/release/one_in_eight_people_living_in_poverty_in_australia_new_report