1
 Detecting Household Production

• Marianne Baxter
• Boston University and NBER
• and
• Dana Rotz
• Harvard University
•  
• November 2009
•  

2
Why is household production important?

• Substitution between home and market sectors
  has been shown to be important for macro
  aggregates and individual labor supply decisions
• Of limited use in solving the retirement
  consumption puzzle? (Rogerson 2009)
• We do not present a formal model but have in
  mind the models of Baxter and Jermann (1999),
  Benhabib, Rogerson and Wright (1991), Greenwood,
  Rogerson and Wright (1995), McGrattan, Rogerson
  and Wright (1997) and Rupert, Rogerson, and
  Wright (2000).

3
Household production models

• In these models, households allocate time to
  market work, home work, and leisure.
• Substitutions among home goods, market goods
  and leisure respond to changes in the relative
  returns to home and market work.
• Baxter/Jermann (1999) showed that the apparent
  excess sensitivity of market consumption to
  predictable changes in market income could be
  explained by substitution between home and market
  sectors. Calibrated model with standard
  parameters.

4
What data could shed light on this question?

• Married couples with a single earner have more
  time available for home production and/or leisure
  than do married couples with two earners--what
  are the single-earner families doing with all
  this extra time?
• There is a large and growing literature using
  time-use data. As a complement to these studies
• we detect production of home goods and
  leisure by studying detailed expenditure data,
  focusing on inputs to home production and leisure

5
Predictions of household production models

• Compared with 2-earner households, and
  controlling for income differences, 1-earner
  households should
• produce more meals at home and purchase fewer
  meals from restaurants
• use home capital more intensively (home fuels)
• spend less on market substitutes for goods that
  can be produced at home, e.g., housecleaning
  services
• spend less on fixed costs of going to work
  (driving).

6
Implications for purchases of leisure goods

• ?
• In the canonical model, leisure is produced by
  time alone.
• In fact, purchases of leisure goods and travel
  represent about 12 of non-housing after-tax
  expenditure.

7
Data Consumer Expenditure Survey (CEX)

• Interview survey Comprehensive expenditure
  data. Families are in the survey for a maximum of
  four quarters.
• Diary survey One or two weeks for each
  family.
• Detailed expenditure data on
• -- Groceries
• -- Meals away from home
• Years covered 1988-2007 (1982-1987 not used to
  due to redefinition of key goods)

8
The Data

• Married couples, younger than retirement age
• --one full-time worker, one 'homemaker'
• --two full-time workers
• Of those married individuals not working in the
  market, 90 are female, and of these 89 state
  that they are not working 'in order to take care
  of the home/family'.
• We drop families with nonworking males since a
  majority of these are unemployed due to
  disability (60). Only 20 claim to be taking
  care of the home.

9
Demographic Differences
1 earner 2 earners
Any children 75 58
Child under 6 51 28
The biggest demographic difference across the
family types is in the presence of children,
especially young children
10
Data Consumer Expenditure Survey (CEX)

• Of the initial 700 goods in the interview
  survey, 400 goods are related to household
  production in some way
• The goods we study represent over 85 of
  non-housing expenditure
• These goods were allocated to seven major
  categories

11
Major expenditure categories

1. Intermediate inputs to home production (food)
2. Utilization of household capital (fuels)
3. Substitutes for home production (restaurant
   meals)
4. Fixed costs of going to work (bus fare suits)
5. General leisure purchases (sporting goods)
6. Travel (airfare)
7. Household capital (purchases of consumer
   durables reported value of owned home)

12
Minor categories, with an example

• Within each major category are several minor
  categories, for example
• Substitutes for home production
• -- Food away from home
• -- Child care
• -- Home maintenance servicessee next slide
• -- Contractors services
• -- Laundry and dry cleaning, coin-operated
• -- Alterations and repair of apparel and
  accessories
• -- Laundry and dry cleaning, not coin-operated

13
Individual goods (UCCs)

• Within each minor categories, there are up to 41
  individual UCCs, for example
• Substitutes for home production
• --Home maintenance services
• -- Service/repair of dishwasher, range hood, etc.
• -- Fresh flowers or potted plants
• -- Housekeeping services
• -- Gardening and lawn care services
• -- Water softening service
• -- Services for termite/pest control
• -- Other repair or maintenance services

14
The Data

• We view each family in the sample as an
  observation on families of a given type.
• Sometimes families of that type will make a
  purchase in a given time period and sometimes
  they will not.
• By including all families of a given type in
  the computation of the unconditional expenditure
  figures, we have a snapshot of what a typical
  family of that type will spend in a typical
  time period.

15
Structure of Paper

• Section 2 What are the patterns of expenditure
  across family types in the raw data? (skip)
• Section 3 A method for correcting for
  differences in income and demographic
  characteristic across family types
• Section 4 Do we see evidence of home/market
  substitutions once we correct for income and
  demographic differences?

16
Empirical method overview

• In the program evaluation literature, a typical
  question is
• What effect did the job training program have on
  the trainees wages?
• To answer this question, trainees are matched
  with non-trainees with similar characteristics
  and their wages are compared.

17
Empirical method overview, contd.

• Our question is
• What would be the expenditure effect on good j
  if the family changed from a 2-earner family to a
  1-earner family?
• We match 1-earner families with similar
  2-earner families.
• We compare the expenditure between the
  single-earner household and its matching
  two-earner household.

18
Propensity Score Estimation

• Similarity is defined using the propensity
  scorethe probability that family with two adults
  has a single earner.
• The propensity score will depend on
• -- The opportunity cost of time spent in home
  production Potential income
• -- Variables that influence home productivity or
  enjoyment of leisure, including
• - Number of children
• - Age
• - Race

19
Summary of econometric procedure

• Estimate potential income for men and women
  separately, using characteristics (but not actual
  income) of both spouses.
• Estimate the propensity score for each family
  using potential income of both spouses and other
  individual and family characteristics, e.g, age
  of spouses, number of children and ages of
  children.

20
Summary of econometric procedure, contd.

• Match each 1-earner family with the 2-earner
  family with the closest propensity score. We
  also compared results from matching with up to 5
  families. Results not affected.
• Finally, regress expenditure differences across
  matched families on income differences and
  differences in other demographic characteristics.
  This step is important for adjusting expenditure
  for income differences between 1-earner and
  2-earner families.

21
Overlap and unconfoundedness

• There are two statistical conditions on the data
  that must be satisfied for the method to be
  appropriate overlap and unconfoundedness.
• Bottom line Were fine on both counts.

22
Results

• Table 8 presents results for the full sample of
  families, and
• Children
• Families without children
• Families with a child under 6 years of age
• Families with a child aged 6-17
• Income
• Families with low incomes (10th-40th
  percentile)
• Families with high incomes (60th-90th
  percentile)
• Age
• Younger families (average spouse age lt 40)
• Older families (average spouse age gt 40)

23
Table 8 Expenditure Effects of Change from 2
earners to 1 earner Results from Propensity
Score Matching Plus Regression ( change from
initial 2-earner expenditure level)
Diary Survey All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Food from Grocery Stores 4 -5 20 36 10
High time input 9 5 32 39 15
Intermediate time input 1 1 5 27 11
Low time input -1 -25 13 37 3
We expect substitution toward more time-intensive
groceries used to produce meals at home, and this
is exactly what we find.
24
Table 8 Expenditure Effects of Change from 2
earners to 1 earner Results from Propensity
Score Matching Plus Regression ( change from
initial 2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Low income Low income
Utilization of Home Capital 2 4 1 6
Fuels, trash, phone
Utilization increases across the board largest
for families without children and low-income
families.
25
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Market substitutes for home production decrease
for all family groups.
26
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Food away from home (CEXI) -11 -21 -19 -18 -7
Child Care -67 n/a -50 -69 -53
Home Maintenance Services 15 20 106 -62 -5
Contractor's Services 28 -3 -35 1 41
Laundry/dry cleaning, coin-op. 5 -5 -1 20 -6
Alteration, repair, and tailoring -6 7 386 -132 33
Laundry/dry clean, not coin-op. -6 -20 16 -17 6
Food away from home decreases for all family
groups. (Includes take-out.)
27
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Food away from home (CEXI) -11 -21 -19 -18 -7
Child Care -67 n/a -50 -69 -53
Home Maintenance Services 15 20 106 -62 -5
Contractor's Services 28 -3 -35 1 41
Laundry/dry cleaning, coin-op. 5 -5 -1 20 -6
Alteration, repair, and tailoring -6 7 386 -132 33
Laundry/dry clean, not coin-op. -6 -20 16 -17 6
Child care expenditures decrease by one-half to
two-thirds.
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Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Food away from home (CEXI) -11 -21 -19 -18 -7
Child Care -67 n/a -50 -69 -53
Home Maintenance Services 15 20 106 -62 -5
Contractor's Services 28 -3 -35 1 41
Laundry/dry cleaning, coin-op. 5 -5 -1 20 -6
Alteration, repair, and tailoring -6 7 386 -132 33
Laundry/dry clean, not coin-op. -6 -20 16 -17 6
Our most counterintuitive result Spending on
home maintenance services increases, especially
families with young children.
29
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Food away from home (CEXI) -11 -21 -19 -18 -7
Child Care -67 n/a -50 -69 -53
Home Maintenance Services 15 20 106 -62 -5
Contractor's Services 28 -3 -35 1 41
Laundry/dry cleaning, coin-op. 5 -5 -1 20 -6
Alteration, repair, and tailoring -6 7 386 -132 33
Laundry/dry clean, not coin-op. -6 -20 16 -17 6
No significant effects for contractors
servicesmay not be DIY substitutes.
30
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
  All families All families No children No children Children under 6 Children under 6 Children 6-17 Children 6-17 Low income Low income
Market subs for home prod'n. -12 -9 -27 -38 -14
Food away from home (CEXI) -11 -21 -19 -18 -7
Child Care -67 n/a -50 -69 -53
Home Maintenance Services 15 20 106 -62 -5
Contractor's Services 28 -3 -35 1 41
Laundry/dry cleaning, coin-op. 5 -5 -1 20 -6
Alteration, repair, tailoring -6 7 386 -132 33
Laundry/dry clean, not coin-op. -6 -20 16 -17 6
Laundry etc. shows expected pattern increase for
time-intensive coin-operated method, decrease for
time-saving alteration and drop-off laundry/dry
cleaning.
31
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
 Diary Survey All families All families
Food Away from Home -9
Lunch Away from Home -16
-- Lunch at Fast Food -20
-- Lunch at Full Service -19
Dinner Away from Home -9
-- Dinner at Fast Food -20
-- Dinner at Full Service -5

1. Total expenditure falls significantly.
2. Decreases in lunch expenditures are about as
   large as for dinner.
3. Full-service and fast food affected to similar
   extent.

32
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
 Leisure Travel All families All families
General Leisure Expenses 1
Cable or Satellite TV -7
Electronics -10
Books, Newpapers Mags. 2
Sports, Games, and Toys 7
Travel 5
Airfare 1
Leisure Small overall effect, evidence of
substitution toward time-intensive leisure
goods Travel Also small overall, no significant
change in time-saving air travel
33
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
All families All families
 Fixed costs of going to work -9
Driving -11
Personal Care Incl. Haircuts -9
Men's Clothing 2
Women's Clothing -13
Womens clothing expenditures decrease, as
expected, but this is not concentrated in
work-related items such as suits and uniforms.
34
Table 8 Expenditure Effects of Change from 2
earners to 1 earner ( change from initial
2-earner expenditure level)
Non-Housing Home Capital All families All families
Appliances and Tools 8
Furniture, Dinnerware, and Housewares 20
New Cars And Trucks -14
Used Cars And Trucks 1
Number of vehicles owned (not or ) -0.26
Property Value 9
35
Summary

• Compared with 2-earner households, we find that
  1-earner households
• (a) Do produce more meals at home and purchase
  fewer meals from restaurants.
• (b) Further, 1-earner households
  substitute toward high-time-input groceries.
• Do use home capital more intensively (home
  fuels, trash, telephone.)

36
Summary, contd.

• Compared with 2-earner households, we find that
  1-earner households
• (a) Do spend less on some market substitutes for
  goods that can be produced at home restaurant
  meals and child care, but
• (b) Do not spend less on housekeeping
  services or contractors services.
• 4. Do spend less on fixed costs of going to
  work, notably driving costs and womens clothing.

37
Summary, contd.

• Compared with 2-earner households, we find that
  1-earner households
• (a) Do have different purchase patterns for
  non-housing home capital higher furniture
  purchases, lower new car purchases
• (b) Do report higher home values
• 6. Do spend differently on leisure goods,
  although the aggregate effect is not large. Some
  evidence that substitution is toward
  time-intensive goods.

38
Future Research

• Is there enough cyclic home/market substitution
  to explain the consumption excess sensitivity
  puzzle in the way proposed by Baxter/Jermann ?
• 2. Combine the CEX data with the ATUS data
  (synthetic cohort analysis) to generate estimates
  of the home production function(s)
• 3. This information will be used to formulate
  and restrict a multi-person model of a household
  engaged in home work, market work, and the
  production of leisure