23 May 2012 Accounting for Household Production in the National Accounts, 1965–2010 By Benjamin Bridgman, Andrew Dugan, Mikhael Lal, Matthew Osborne, and Shaunda Villones N ONMARKET production has long been a subject of interest to national accountants and econo- mists, dating back at least to the seminal work of Si- mon Kuznets (1934). Since the inception of the national income and product accounts (NIPAs) in the 1930s, issues have been raised about the scope and structure of the accounts. Kuznets, one of the early ar- chitects of the accounts, recognized the limitations of focusing solely on the measurement of market activi- ties and excluding a broad range of other nonmarket activities that have productive value such as household production. And although the national accounts are now recognized as one of the most successful analytical measures in the United States, various supplemental series and accounts have been developed to account for a broader set of activities outside of the market econ- omy that may offer further sources of economic growth. For example, William Nordhaus and James Tobin in the early 1970s developed a major set of extended ac- counts that tackled the broader measurement of wel- fare; those accounts added imputations for government and household capital services, nonmar- ket work, and a major imputation for the value of lei- sure. The effect was significant, as the imputations nearly doubled gross national product (GNP) in 1965 (Nordhaus and Tobin 1973). 1 Throughout the 1970s and 1980s, Dale Jorgenson with Laurits Christensen, Barbara Fraumeni, and Alvaro Pachon developed a system of national accounts that vastly expanded mea- sures of consumption and investment (Jorgenson and Christensen 1969, 1973; Jorgenson and Fraumeni 1980, 1989; Jorgenson and Pachon 1983). Jorgenson and colleagues not only accounted for household phys- ical capital services, household production, and lei- sure, but they also quantified the impact of investment in human capital on GDP. In a particularly important series of papers, Jorgenson and Fraumeni (1989, 1992a, and 1992b) developed the lifetime incomes ap- proach to valuing investments in human capital, which in combination with other imputations, added roughly 1. Before 1991, GNP was the primary measure of U.S. production and is measured as the market value of goods and services produced by labor and property supplied by U.S. residents regardless of where they are located. $14 billion to GDP for 1984, almost 4.5 times as large as the unadjusted value of GDP for 1984. Work by John Kendrick and Robert Eisner also sug- gested expanding the boundaries of investment to include investments in capital of all kinds, including investment in tangible human capital and in intangible investments such as research and development. Kend- rick’s set of expanded income and product accounts Summary of Findings This paper develops a satellite account that adjusts gross domestic product (GDP) for household produc- tion between 1965 and 2010. The primary findings are as follows: ● Incorporating the value of nonmarket household production raises the level of nominal GDP 39 per- cent in 1965 and 26 percent in 2010. The decline reflects the steadily decreasing number of hours households spent on home production. ● In 1965, men and women spent an average of 27 hours in home production, and by 2010, they spent 22 hours. This overall decline reflects a drop in women’s home production from 40 hours to 26 hours, which more than offset an increase in men’s hours from 14 hours to 17 hours. ● The downward trend in the hours spent on non- market household production appears to be unaf- fected by the 2007–2009 recession, despite the increasing number of unemployed household members. ● Including the value of household production lowers measured GDP growth by accounting for the losses in home production associated with increases in women’s labor force participation and in market wages between 1965 and 2010. Over this period, adjusting nominal GDP for home production low- ers growth from 6.9 percent to 6.7 percent. ● Home production reduces measured income in- equality. Although households engage in a similar number of hours in home production regardless of income, adding a relatively constant value of home production to all households proportionately raises the income of low-income households more than that of high-income households.