Time, money & unemployment

The unemployed put more time into unpaid household work, including child care, according to an important new study by Mark Aguiar, Erik Hurst and Loukas Karabarbounis. Their findings dramatise the limitations of conventional measures of economic well-being based entirely on market income.

When Benjamin Franklin advised us that “time is money,” he was living a world in which many individuals were self-employed and could at least grow their own food. In our world, it’s hard to convert time into money if you can’t find a paying job.

Still, Americans 15 or older (including students and retirees) devote, on average, almost as much time to unpaid work as they do to paid work (about 23 hours a week on household activities, purchasing goods and services, caring for and helping others, and volunteering, compared with about 25 hours a week on paid work and related activities, according to data from the 2010 American Time Use Survey).

Time applied to unpaid work can provide a partial substitute for consumer expenditures. Individuals can cut down on restaurant spending by preparing their own meals, care for family members rather paying for day care or elder care, clean the house instead of hiring a maid or fix their own roof instead of hiring a roofer.

Shopping may be fun sometimes, but it’s also foraging work in which increased time and effort can save money. In previous research, Professors Aguiar and Hurst have shown that households that shop twice as frequently as others pay prices that are 7 to 10 percent lower.

Retired people seem particularly adept at stretching their budgets. In addition to shopping more carefully, they typically reduce spending on food – a pattern that once led many economists to assume that they had not saved enough for retirement. But Professors Aguiar and Hurst have shown that retirees’ actual food consumption does not decline. Rather, they increase the time devoted to food preparation, cooking more (and presumably better) meals for themselves.

Previous studies of the impact of unemployment on time allocation showed little effect, generating at least one news article about the unemployed “frittering their time away.” Professors Aguiar, Hurst and Karabarbounis provide a very different picture in their recently released paper for the National Bureau of Economic Research, “Time Use During Recessions.”

In a sophisticated econometric analysis of data from the American Time Use Survey, they controlled for underlying trends and also compare differences in time-use across states with differing levels of unemployment.

They found that about 30 per cent of the forgone market work hours during the recession were reallocated to housework and about 5 per cent to child care. An additional 10 per cent were reallocated to education, health care and civic activities. Time devoted to job searches increased, but remained relatively small, perhaps because there’s not that much people can do when jobs aren’t available.

Most of the remaining time went to increased sleep time and leisure, including more television viewing. Not surprisingly, women were more likely than men to reallocate time to housework. They were also more likely to increase their sleep time.

The overall increase in non-market work implies that household consumption among the unemployed fell less than market income, but it’s hard to put a dollar value on the unpaid work.
When people make a voluntary decision to substitute time for money, we can infer something about the relative value they place on it. But most unemployment is involuntary, and some unpaid work probably represents an effort to stay busy more than a significant contribution to household living standards.

The authors emphasise the relatively large impact of unemployment on unpaid work, in part because this is a new finding, and in part because it counters the wrong impression that, as Professor Hurst put it, the Great Recession was a Great Vacation.

But it is also important to note that most of the unemployed can’t allocate more of the free time they gain to productive uses, even if they want to. They lack the capital, land, tools and skills needed to flexibly shift from wage employment to production for their own use.

Even when they can make a partial shift, their productivity is likely to be lower in unpaid work than paid work. That’s why involuntary unemployment represents such a waste of human capabilities and loss of productive output for the economy as a whole.

And that’s why Benjamin Franklin, were he alive today, would be wagging his finger at policy makers who don’t consider unemployment our most urgent economic problem.

(The writer is an economics professor at the University of Massachusetts Amherst)