The Massive Missing Link in GDP: Home-Work

I’ve spilled a lot of electronic ink over the last few years arguing about what causes GDP growth (especially in developed countries like the U.S.), tacitly accepting that GDP per capita was a reasonably good proxy for prosperity and well-being. And it is–reasonably. It has the advantage of being widely and fairly consistently measured throughout the world, and most measures of well-being do correlate quite strongly with GDP per capita: life expectancy, child mortality, “happiness,” material well-being, access to education and health care, absolute poverty levels, etc. So it’s not crazy to look at this measure, and try to figure out what government policies increase it.

But there’s always been something nagging at me, telling me that GDP has something missing–something big.

That something is home-work. GDP doesn’t count any work that that isn’t somehow part of the “market.”

Suppose you buy some pasta and tomato sauce and cheese, and make lasagna for your family and friends. That doesn’t count as “production.” If you’d bought the lasagna ready-made at the supermarket, that would count (because people were “employed” making that lasagna). But your work at home doesn’t count.

Now multiply that by 100 million households, 365 days a year.

Or suppose you spend your vacation painting your house. Does it count? No. (Except for the paint and materials you buy.) But if you hire a contractor to do it for you, that counts.

There have been many attempts over recent decades to more accurately measure countries’ “informal sectors” (partly correlated with the “shadow” and in part illegal economy)–individuals working for themselves and in small groups–attempting to include this notoriously difficult-to-measure but huge sector in GDP estimates. (The IMF estimates that the shadow economy accounts for 12-15% of GDP in OECD countries, and 35-44% in developing economies.)

But even those studies don’t attempt to measure what is undoubtedly a massive amount of production that has nothing to do with markets.

There’s a nice writeup of this conundrum on page 79 of Norman Frumkin’s Tracking America’s Economy.

Says Frumkin:

In the 1970s, the Bureau of Economic Analysis began to develop estimates of such items that economists could use to modify the traditional GDP measures, but the project was discontinued for lack of funding.

This all leads me to wonder: when Europe builds a system based on shorter work weeks and long vacations, how much more home-work gets done as a result? If that work were included in GDP estimates, what would it say about economic growth, prosperity, and well-being in those countries? (This not even counting the inherent “good” of leisure time.)

I’m here to say that there are few things that contribute more mightily to a society’s happiness and well-being than people cooking meals with and for their friends and families. Home maintenance undoubtedly contributes massively to the general prosperity.

Reading to our children and taking care of our elderly? You decide.

Update: I pulled together some rough numbers on this, posted here.