Economics for Everyone: Evaluating Economic Activity-Home Economics – Housewives Contribution to the Economy

The Governor of Reserve Bank of India, Dr. Raghuram Rajan, while raising a question mark over the way gross domestic product (GDP) is calculated in the country stated that “we get growth because people (are) moving into different areas”.

May 28, 2016 04:05 IST AICAR Business School Prof. M. Guruprasad |

Section I - Background

 
“ I don’t work, I am just a housewife!”
 
The above statement is an often spoken and heard expression. Does that mean the housewife does not contribute?
 
 
Let us consider this regular scenario in the Indian household
 
Shanti is a 45-year-old housewife living in a rural village of India. She hails from a lower middle-class family. She was educated up to 5th grade and then got married while she was 15 years old. Her husband has a small goods shop at the village, and stays in the city 100 km away from home. They have three Children. Her day is always busy. Her daily routine involves getting up at five in the morning. After sweeping the house and straightening up, she sweeps the yard to keep out the dust. Early in the morning, she milks the family’s cows and sends the milk to the co - operative. She takes her bath and starts preparing the morning breakfast. After preparing breakfast, she washes the dishes, cleans the kitchen, prepares food for the cattle, and then cleans the cattle shed. By this time it is almost late morning. She starts preparing for lunch by cleaning, cutting, and washing vegetables, then prepares the meal. She has to ensure that her family gets lunch at the right time, as her son needs to get back to his work in the field. She also works on the farm. She is fortunate that the family has a bore well, which makes it easier for her to collect water. Previously, they did not have one and she had to queue for hours in order to get water. She prefers to rest or sleep whenever she has some time off from her work.
 
The above case is part and parcel of many Indian Housewives. It is a way of life for millions.
 
Consider the statement made by the Supreme Court of India few years back. According to the apex court “Housewives Are An Invaluable Unpaid Resource And Definitely Not Unproductive!”
 
This statement was made in the context of the Census report over clubbing housewives and women engaged in domestic work along with the categories containing beggars, prostitutes and prisoners within the Census; the court stated that such categorization of women is totally irrational and insensitive. According to the Census, the logic behind clubbing housewives along with beggars and prostitutes stems from the fact that none of them directly contributes to the economy. In simple terms, it means that all three categories of people are unproductive. Critics of this report also point out that when government statistics tell us that more women are unemployed by men, this shows blindness to the fact that most women do important wok for long hours at home.
 
Recently, the Governor of Reserve Bank of India, Dr. Raghuram Rajan, while raising a question mark over the way gross domestic product (GDP) is calculated in the country stated that “we get growth because people (are) moving into different areas”.
 
Value addition to the GDP is important when people move into newer areas of work rather than just a rise in the growth numbers, Rajan said while asserting the need to be careful in counting GDP numbers. To quote him “So, in that sense we have to be a little careful about how we count GDP because some time we get growth because people (are) moving into different areas. It is important that when they move into different areas they are actually doing something which is more value added,” Rajan said.
 
In this context, the RBI Governor gave an example of two neighbouring mothers who babysit each other’s child and get paid an equal salary. He said both the mothers getting paid a salary will be an addition to the GDP but may not be an exact reflection of an economic growth.
 
According to him, “If mother A went to look after the children of mother B and mother B went to look after the children of mother A, and they each paid each other an equal amount, GDP would go up by the sum of the two salaries. But would the economy be better off? Presumably, kids want their own mother rather than the neighbouring mother. And the economy would be worse off,”
 
To understand the above discussions we need to understand the following
 
  • The Conceptual framework of what economists call as the Demarcation between Productive (Economic) Activity and Non-Productive (Non- economic) activity.
  • The economic/ productive contribution of Housewives.
 

Section II - Demarcation of Productive Activity

 
In Economics, the distinction between productive and non-productive activities is crucial to the basic concepts of National Income accounting. A productive activity, in its broadest sense, can be defined as one which involves the use of scarce resources in the provision of goods and services to satisfy human wants.  However, according to some economists, not all activities that result in human satisfaction can be included in the definition of productive activities for the simple reason that it will make the concept too far - fetched to be subjected to any meaningful measurement. A line of demarcation has therefore, to be  carefully drawn between those activities which can be called “ Productive “ in the sense that their contribution can be included in the computation of national income  and the other activities of the more general nature which are to be excluded from national income accounting.
 

 
As a general rule, according to economics theory, all activities resulting in the production of Marketable goods and services are included in the calculation of National Income. However, the institution of the market which lies at the root of the conventional distinction between productive and non- productive activities or between economic and non-economic goods, has gradually failed to provide an effective line of demarcation as we pass from highly developed market economies to underdeveloped countries where the household enterprise is the predominant form of productive activity.
 
Many cases can be cited where convention rather than logic determines then category under which they are actually classified.  For instance, take the case of the boy who does not get his pocket money from his father straightaway but has instead, to earn it himself. He may earn it either by offering some service to his father like washing his clothes or cleaning his bicycle, or else by delivering newspapers. In each case there is an exchange of service for money. In the first two cases, the services rendered are not included in the National Income on the ground that they constitute personal services rendered within the household or family. However, in the third case the money earned by the same boy will be included in the national income as a part of the total factor earnings on the ground that it is earned through a productive activity in the form of rendering a marketed service. The most obvious perhaps the most controversial example that can be cited in this connection is that of services rendered by housewives. By convention the services of housewives are not included in the national income. Obviously, such conventions give rise to interesting cases. Similarly, consider a situation a group of housewives makes a formal arrangement under which they cook meals for each other and receive payments for their effort (something similar to Child care mentioned by the RBI Governor).  In such a case the services provided by housewives for cooking meals will be considered as a part of productive activity and accordingly the reported national income will show a significant increase even though the actual flow of the total output in the economy will have remained unchanged.
 
Let us consider the opposite situation. What happens in case when a man marries a housekeeper? From the view point of national income measurement, it may cause the reported or measured national income to decline.
 
As observed earlier, their daily chores of cleaning, cooking or raising their children have always been ignored by national accounts - if a man marries his housekeeper and stops paying her for her work, GDP goes down. If a woman stops nursing and day care assistance from another women for her baby, GDP goes up. Thus Housewives are an invaluable unpaid Resource and definitely not unproductive.
 
In this context it is important to note what Dr.Rajan has said. His point was even though Housewives taking care of others children contribute technically to the economy, it cannot compensate the nursing of a child by the mother which has a profound qualitative impact.
 
It should be noticed, however, that the generally accepted practice of excluding all types of household activities while measuring the national income, is based on practical rather than logical reasons. It is extremely difficult for instance, to accurately measure in money terms the value of services rendered by housewives. Moreover, one can always argue that given the broad socio –cultural structure of the country, the relative importance of housewives’ services will not undergo any significant change over a specified period of time so that for the purpose of judging the overall ups and downs of material income it does not really matter whether this particular item is included or not.
 
TREATMENT OF NON-MARKETED OUTPUT:
 
The general rule that national income includes only market activity is not free from exceptions. In fact, exceptions arise on both sides, i.e, not all market transactions are included and not all non –marketed output is excluded. Transfer payments, capital gains or losses, and illegal activities are examples   of market transactions   which are generally excluded from national income.  Similarly, consumption of their own produce by farmers and other producers, net rental value of the owner occupied residential  dwellings,  and payment in kind received by workers are common examples  of non-marketed output  that is generally included in the national income.
 
As a general principle, the treatment of different types of non-marketed output depends primarily on the need for overall consistency in the accounts. Generally, a given category of non- marketed output is included if its inclusion makes the national income accounts internally consistent. It can be seen, for instance, that from a purely conceptual viewpoint the consumption by a farmer of his own produce involves a concealed exchange, viz, the sale of output by the farmer in his capacity as a producer to the (same) farmer in his capacity as a consumer.
 
The treatment of non-marketed output becomes controversial issue not so much on account of disputes about its inclusion or exclusion per se as on the account of major differences of opinion on the statistical methods of valuation to be followed. Evidently non-marketed output by its very nature involves the problem of imputation. Since non-marketed output does not pass through the usual process of exchange in the market, its money value is not available directly and the same has, therefore, to be imputed on the basis of some acceptable criterion. Several procedures based on alternative assumptions regarding the imputed valuation involved can be devised for this purpose, and it would not be surprising to find that honest differences of opinion exist among experts regarding a particular procedure that should be followed in a particular case.
 

Section III - Economic Contribution of a Housewife

 
According to experts, a woman as a housewife contributes to society directly by providing a sound foundation for a well-knit family unit and a stable society and indirectly in development of the society by giving it confident, encouraged and responsible young citizens. She inculcates positive qualities in children, which once imbibed, inevitably become part of their nature and provide guidelines for their wholesome behaviour pattern.  The list goes on. Managing domestic help can be a full time job in itself and doesn’t substitute for the everyday drudgery of housework that a housewife still performs.
 
Housewives help ensure the smooth functioning of households (imagine if she went on an indefinite strike, or fell sick), but the work they perform (whether cooking, cleaning, or raising kids) isn’t recorded as economic activity. Official gross domestic product statistics, in many nations, measure only the value of labor or of goods and services sold in the market. Because work at home isn’t part of the market system, and doesn’t receive compensation through a wage, this important social and human capital goes unrecorded in official statistics. This is true for all unpaid work, as well as goods and services not intended for, or which never reach, the market (such as fruits and vegetables grown and consumed at home).
 
 
A housewife generates in each and every member of family a feeling of being wanted and loved. She provides to her spouse a tension-free atmosphere to develop his personality in full and prosper in life. He gets enough time, energy and purpose to pursue/progress in his career without any hassle. To elders she provides a desirable shelter and comfort. She is, in true sense, a trainer of a child from the child’s infancy. All these jobs require lots of patience, tolerance and sense of responsibility.
 
The silent contribution made by housewives to the economic development of the country remains to be calculated. The role of housewives in managing homes was invaluable. Imagine a case where we have to spend to you engage professionals to undertake domestic work at Home. We know it would cost us a lot. Then we would understand the role played by housewives to the development of the nation’s economy. Women today had come to play and occupy top posts in organisations and had made their presence felt in the business fraternity. Besides, they played a great role as chiefs of local bodies. This shows their potential.Housewives are thus an invaluable unpaid resource and their contribution to society is invaluable.
 
She’s everything to everyone — the dutiful wife, caring mother and daughter-in-law; the cook, cleaner, and manager.
 
Until few decades ago, women were expected to stay at home, and those who wanted to work were often stigmatized. Today it’s mostly the other way round.In many societies work in the productive economy is valued far more than work in the domestic household economy. As discussed earlier, by the productive economy, we mean the production of services and goods that people will pay for or buy. By the term domestic household economy, we mean cooking, cleaning, ironing, emotional nurturing, care for children and the elderly. When these things are done within the family, these are not paid for. As discussed earlier, society tracks the productive economy in many ways. When we worry about joblessness we often think of jobs in the productive economy.
 
The role of housewife has certainly changed over time. Family structures have also evolved, often with two incomes in each household. With these changes, domestic work has been redistributed amongst the women, men and children of the family. When it can be afforded, families will hire help for the range of duties to be taken care of within the home.
 
In the past, homemaking skills were taught and passed down through generations. Some men and women choose to care for the home as a vocational choice. Others may be unemployed or underemployed, with more time to care for their home and families. But the reality remains that most people must balance both outside jobs and domestic duties to ensure the effective and efficient functioning of the family and home. The economic reality today has meant the loss of secure, lifetime employment that can provide for a family. Employment is increasingly flexible and insecure, characterized by short-term contracts and part-time, seasonal or temporary positions.
 

Section IV- Valuation of a Housewife Services

 
Now, having known the immense contribution of a Housewife the question which arises is, how do we value the Housewife services? Often the simplest questions in life have the most complicated answers. Such is the case in measuring the value of non-market activity like volunteer hours, leisure time, and especially the value of a housewife. Critics ask how can something so much a part of our everyday experience as “household service” be such a challenging thing to evaluate. Of course, at the heart of the matter is the absence of explicit market pricing for housewives since it is considered as non marketed output.
 
Economists have argued for two different methods to measure the value of a housewife: the opportunity cost method; and the replacement cost method.
 
The fundamental idea behind the opportunity cost method is “what does the household sacrifice by having the wife stay home to work?” In other words, what is the opportunity cost of the housewife’s time? If a female worker is earning X Rs/hour, and she decides to forgo an hour of work to do the dishes, the cost of that task is X Rs. The economist then says the X Rs measures the value of an hour of housewife service.
 
The replacement cost approach to the problem asks: “how much would it cost to replace the services of the housewife?” The idea being one could go into the market place, find the wage for nannies, cooks etc., and then use these wages as the value of the housewife services. Sometimes an average is used, sometimes the wage within each specialty is used.
 
Some experts point out limitations in these methods. The limitations are, that the Opportunity Cost approach assumes your hours of work are completely flexible. The Replacement Cost approach assumes the productivity of the wife and market replacement are the same. Both methods have a hard time dealing with full-time, long-term housewives who have been separated from the labor market for years. Both methods rely on often arbitrary measures of time devoted to household services. Both methods are silent on how to treat housewife services that are not available in the market. Both methods have a difficult time dealing with the commingling of leisure and household services. Despite limitations, both the methods seem to give a closer solution to the complex problem of valuation of Household services.
 

 
Economists have long argued that, by excluding unpaid work and other important items not measured by GDP (such as the value of a clean environment), official statistics are potentially misleading and skew our understanding of the true contribution of different sectors of the economy. Research by the U.S. Department of Commerce’s Bureau of Economic Analysis finds that if the value of household production was included in estimating GDP, it would have added $3.8 trillion to the U.S. economy in 2010, lifting it by nearly 26%.
 
According to the United Nations, the unpaid work done by women globally is estimated at $11 trillion USD a year. Globally, women own 1 percent of property overall, and possess less than 5 percent of the world’s income. Yet women do a disproportionately high percentage of the work when also accounting for domestic work. Healthcare Quarterly estimated that in 2007, the annual cost of homemaking (taken at an hourly wage) was an estimated $24 trillion USD when evaluated according to the market rate.
 
Even if some of the contributions of a housewife are intangible and cannot be added to the GDP, it should not mean that their contributions are reduced to a nothing. How can one rule out the facts that even today in India, as per an NSSO survey, more than 50 per cent of rural women and 20 per cent of urban women are engaged in activities like collection of fuel wood, fetching of water after walking for kilometers, and providing a silent latent hand in small household businesses – acts that go completely unpaid. Beside these, a large number of women across the country look after livestock, poultry, domestic hygiene, cooking, of course children too, and so on and so forth. Going by the assumption that these housewives work for around 10 hours per day (which again is a conservative estimate, as most of them are found working for more than 12 hours a day), if these women were paid for their daily work, even simply at par with wages set by the government under the Minimum Wages Act, a single women ends up adding a few thousands of rupees per month per family. Almost all of the work done by housewives is economic in nature as in most of the developed countries, the work that housewives do are generally carried out through paid contracts. According to experts, if we were to add the contributions made by housewives to their respective households – to the National Income – then the GDP would go up by many folds.
 
According to some studies, globally, women spend roughly three times the amount of time spent by men on unpaid work. If that unpaid work were to be valued and compensated in the same way as paid work, it would contribute US$300 billion a year to India’s economic output. Thus, if this gender parity were to be tackled, we are looking at some big time growth in our GDP.
 
Unpaid work, usually in the form of domestic labor by homemakers, exists in all economies, but it’s especially prevalent in developing economies and traditional societies such as India. A 2011 Organization for Economic Cooperation and Development study, sampling 26 OECD member countries plus the emerging economies of India, China and South Africa, found that women overall spend an average of 4.5 hours a day doing unpaid work, roughly 2.5 hours more than men.  Women from Turkey, Mexico and India spend nearly five hours more a day on unpaid work than men. India has one of the largest gender gaps in unpaid work, where men spend less than one hour per day on household chores. This is less than China and South Africa (1.5 hours) and Italy, Mexico, Portugal and Spain, and Turkey (two hours). But even in the countries, in which men and women are equal in almost all respects, there’s still a slight gap of number of hours per day in terms of unpaid work.
 

Section V Legal Lessons

 
It is essential to bring out here that the Supreme Court of India has upheld the economic role of a housewife also. According to the law it is possible to apply opportunity cost in valuing a housewife’s services. For instance, the monetary value of cooking for family members could be assessed in terms of what it would cost to hire a cook or to purchase ready cooked food, or by assessing how much money could be earned if the food cooked for the family were to be sold in the locality. Alternatively, the time taken for housewives to produce these services could be compared with the time that is taken to produce goods and services that are commercially viable. This is because the non-financial benefits of housewives are the time spent in attending to children, family members, and the emotional-quotient, of traditional parenting and so on, which cannot be precisely measured.
 
The Supreme Court documented that services rendered by women in the household sustain a supply of labour to the economy and keep human societies going. If their contribution is taken for granted, this may escalate unforeseen costs, in terms of deterioration of human capabilities and the social fabric. This lack of recognition plays a role in women's high rate of poverty and social oppression.
 
The Court opines that, "[o]ne cannot ignore or forget that the homemaker, by applying herself to the tasks at home, liberates her spouse to devote his energy and time and attention to tasks that augment his income and generate property for the family." 
 
In a case where the Wife passed away and her husband and children filed a petition under the Motor Vehicles Act to claim compensation. In calculating this, the Court decided that the quantification of her household work will be Rs. 2500/- per annum and hence using a multiplier arrived at the amount of Rs. 40,000/- to be paid as compensation. The appellants, that is, the husband and the children claimed that the compensation amount was far too low. The Court observed that in earlier cases in England dependants were to be compensated only for the value of the services lost to them by the death of a wife and mother. A wife’s companionship was ignored, likewise the grief and misery caused by her departure and, so too, a mother’s love, guidance and influence in bringing up children. Therefore the term ‘services’ was very narrowly construed. Therefore the Court opined that a narrow meaning should not be given to the meaning of the word ‘services’ but should be construed broadly and one has to take into account the loss of constant ‘love and affection’ as also of ‘personal care and attention’ by the deceased to her children, as a mother and to her husband, as a wife.
 
In the case of Mehmet v. Perry quantification of housewives’ services was done under three headings:
 
(a)Loss to the family of the wife’s housekeeping services.
 
(b)Loss suffered by the children of the personal attention of their mother, apart from housekeeping services rendered by her.
 
(c)Loss of the wife’s personal care and attention, which the husband had suffered, in addition to the loss of her housekeeping services.
 
Thus, In India, there have been cases that have dealt with this issue. For instance in another, it was stated by the Punjab and Haryana High Court that the housewife provides gratuitous service and had no retirement age, and her death would result in the loss of security in the family and therefore the Court awarded a compensation of Rs. 50, 000. There was an instance of one more case during the early nineties, where the housewife aged 40 years died in an accident. She was self-employed and undertaking stitching work apart from managing the household. The contention that she was earning by stitching clothes was rejected by the Tribunal. This Court accepted this finding but assessed her contribution to the family for purposes of cooking, cleaning, washing clothes etc. at Rs.700/- per month or Rs. 8, 400/- per annum. On this basis, her beneficiaries were awarded compensation of Rs. 1, 26, 000/- after applying the appropriate multiplier.
 
From the line of cases it is evident that arriving at the amount of compensation depends on the facts and circumstances of each case; the economic status of the woman and her family, whether or not she was a working woman as well, what was her age and so on.
 
In National Insurance Company case which looks into the first perspective lays down the following as the modes of quantification Motor Vehicles Act, Second Schedule- gives a value to the compensation payable in respect of those who had no income prior to the accident and for a spouse, it says that one-third of the income of the earning surviving spouse should be the value. The opportunity cost which evaluates her wages by assessing what she would have earned had she not remained at home, that is what the opportunity is lost.
The partnership method which assumes that a marriage is an equal economic partnership and in this method, the homemaker’s salary is valued at half her husband’s salary.
The replacement method which evaluates homemaking by determining how much it would cost to replace the homemaker with paid workers.
 
An important role is played by the housewife because not only does she perform various tasks at home, but she liberates her spouse to devote his energy and time and attention to his work outside by which income and property is generated for the family. Thus in calculating the value of her housework, her husband’s income becomes a very important element. Having stated this, the different modes by which unremunerated domestic activities of women are quantified can be looked into. This can be looked at through two perspectives. First, where, as a result of injury or death, the services of the housewife have been lost and second, where as a result of injury, additional services have to be provided.
 
From a general reading of the cases dealing with this issue in India, it comes to light that Courts either determine the compensation on the actual cost of hiring a replacement of her services, or a more general assessment of the value of the housewife’s services based on the current cost of domestic labour.
 

Section VI THE INTERNATIONAL PARADIGM

 
The issue of recognition and quantification of household work by the wife has long been a part of family laws in various countries. Nordic national politicians have long focused on working mothers, giving them subsidies for elderly care and child care and, more recently, financial incentives to share parental leave. Over all, these policies have increased economic growth, raised tax revenue and given women who wanted to work more financial independence, more social benefits, more personal fulfillment - in short, what many would call more freedom. But social engineering is a blunt tool, and some worry that the freedom of working mothers has come at the expense of making outcasts of a minority who want to do things differently.
 
According to experts, the effective way might be to recognize the contribution housewives make to the economy. "It's not about being paid," according to experts , noting that the economic value housewives create remains within their home, "it's about being valued." If ever there was a time to include unpaid housework in GDP figures, it is now, they say. Working mothers have a stake in this, too: They still do most of the unpaid work in their homes. While society recognizes their role in the conventional economy, women stand hidden and unacknowledged in what is termed by Elson as the ‘Economy of Care’.
 
In 1990, Carol Lees, a homemaker from Saskatoon, Saskatchewan, risked a fine or jail time by refusing to fill out her 1991 census form. Lees was protesting the government’s classification of her as unemployed, knowing all too well that she worked at least 50 hours per week. In 1991, Lees prepared an invoice to the Prime Minister for $95,843.76: a conservative estimate for three years of her homemaking services, not including overtime. Lees only accounted for the care of one child; the expenses add up when considering the costs of hiring someone to perform a homemaker’s tasks. These tasks include roles as chef, housecleaner, care provider for children and the elderly, and so on. The bill for all of these services over the course of a year would be just shy of $100,000 a year, or more.
 
Lees was not prosecuted. Following this incident, changes were made to the 1996 census to recognize the economic contributions of unpaid labour in Canada. Canadians were asked to record the number of hours that they spent on tasks related to child and elder care, housework, yard work and home maintenance. Because of these census changes, important data is available about unpaid work. In 1996, 92 percent of women and 85 percent of men performed some kind of unpaid work or volunteerism in Canada. According to Statistics Canada, women performed 1482 hours of unpaid work annually and men contributed 831 hours.
 
In the article “What is a Wife Worth” the authors mention the three broad factors taken into account when the services of the housewife are lost owing to death or injury. They are expenses or financial dependency (funeral, replacing her service with that of a cook, house maid, medical care and so on) earning potential or service dependency (income she may have earned had she been alive or had not been injured) and non-pecuniary losses or moral dependency (loss of love, care and affection). The authors also mention that in practice, the loss of the housewife’s services is always treated as being the husband’s loss rather than the wife’s, that is, it is seen as the loss of a service which the husband “owns” rather than a loss by the wife of the capacity to do a particular kind of work.
 
Homemakers are the foundation of the household and society. In order to truly understand the needs and capacities of communities and the nation, their work needs to be recognized and valued.
 

 
 “The homemaker has the ultimate career. All other careers exist for one purpose only – and that is to support the ultimate career.” -C.S. Lewis
 
SOURCES
 
Principles of Macroeconomics.  C. Rangarajan, Bakul H. Dholakia.
 
TIMES OF INDIA
 
THE HINDU
 
BUSINESS STANDARD
 
Indian Express
 
Sundaytimes
 
Current legal issues
 
Businessinfocusmagazine
 
Mintonlawfirm
 
arindamchaudhuri.com
 
News central
 
Economica
 
First post
 
WSJ
 
Dairy of a housewife
 
Rappler
 
Prof. M. Guruprasad,
AICAR Business School
 
 
 
 

Related Story