DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS STATISTICS DIVISION	ECONOMIC AND SOCIAL COMMISSION FOR WESTERN ASIA STATISTICS DIVISION
UNITED NATIONS
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Arab Time Use Statistics Workshop

Amman, Jordan, 25-28 April 2011

Dissemination and Interpretation of time use data

Topic 2: Accounting for nonmarket production in U.S and Philippines satellite accounts

Rachid Bouhia

bouhia@un.org

Sources:

Figures 1, 2 and 3: J. S. Landefeld, B. M. Fraumeni, and C. M. Vojtech (2005), “Accounting for nonmarket production: a prototype satellite account using the American Time Use Survey”, Presented at the ATUS Early Results Conference, Washington

Figures 4, 5 and 6: J.O. Encarnacion (2010), “Dissemination and Interpretation of Time Use Data: The Philippine Experience”, Presented at the International workshop on social statistics, Bejing, China

Methodological note:

The American Time Use Survey (ATUS) fills a major gap in U.S. economic statistics. Labor time is one of the most important inputs into market and nonmarket production.

The importance of nonmarket production has been a recurring theme in the U.S and international national accounts literature since the inception of national accounts. Kuznets (1934) and a long-line of other economists that have worked on the accounts have acknowledged the importance of including household production. However, the challenges of producing a consistent up-to-date set of accounts useful to business and public economic policy officials have led most to follow Pigou (1920), who discouraged the measurement of household production and felt that national income should include only market goods and services that could “be brought directly or indirectly into relation with the measuring-rod of money.”

Satellite accounts: One of the impediments to the development of nonmarket accounts was that the expansion of the accounts to include what were sometimes perceived as arbitrary and uncertain imputations for nonmarket activities would overburden the existing accounts and reduce their accuracy, credibility, and usefulness for analyzing, projecting, and managing market policies and activities. Two developments have helped to reduce such concerns. The first was the decision by the System of National Accounts—the international guidelines for national accounting—to recommend the use of satellite accounts for nonmarket activities rather than the expansion of existing accounts. Such accounts would allow for experimentation with changes in scope and measurement for national accounts in the form of supplementary accounts. These accounts would be consistent with and could be used with the existing national accounts without diminishing the usefulness of the core accounts.

A second and related school of thought that developed was that these accounts should be limited to production activities, or near-market activities, that can be substituted for, or contribute to, market activity. They also should be valued using proxies for market prices. In Pigou’s words, they can be valued indirectly “with the measuring-rod of money.” This decision removed normative measures of welfare and other subjective measurement issues.

Alternative estimates of household production time input

Figure 1 presents alternative satellite account estimates based on different methods for valuing household time in 1985 and 2005. This table is organized as follows:

• Column 1 for each year and the growth rate is simply the GDP estimate from the American System of National Accounts.

• Column 2 is the satellite account estimate using the housekeeper wage for valuing household production time.

• Column 3 uses “specialist” wages for valuing each of the 11 categories of household production. For example, janitorial services wages are used for valuing cleaning time and professional and business services wages are used for household management time.

• Column 4 uses judgmental approximations of quality-adjusted replacement cost. This approach recognizes that while the average person’s productivity in making toast may be equivalent to a professional chef, it is probably lower than that of a roofer in replacing a roof. For those types of work, the specialist wage should be adjusted to reflect the average person’s lower productivity (see figure 2 for quality adjustment factors).

• Column 5 shows the opportunity cost approach, which is estimated here using the average wage for all workers.

• Column 6 displays the results if minimum wages were used in valuing household production time inputs
Tutorial:

Step 1: Reading

1) Following your reading, for which reasons nonmarket estimates for household production should be taken into consideration but developed in the form of satellite accounts?

2) Please familiarize yourself with alternative estimates of household production time input.

In figure 1, why are the rows “Services of consumer durables” and “Nonmarket services” equal to 0? Why are the related estimations the highest for the “Opportunity cost” option? Try to explain the distribution of the estimations according to the method.

Given figure 2, please give the hourly compensation in 2004 of an unemployed man who repairs the table of his living room in the case of:

“Housekeeper” method

“Specialist” method

“Quality-adjustment specialist” method

“Opportunity” method (considering the average wage of all worker corresponds to the mean of the average wage for each industry)

Step 2: Results

1) In figure 1, what is the average growth rate of GDP for each estimation method? What do you notice?

2) In terms of levels, what are the nonmarket services shares of GDP (NIPA)? What do you think of the volatility of overall GDP and unpaid household product given figure 3?

Step 3: Critical analysis

The American National Research Council Panel who came up with general recommendations on Satellite Accounts in the report “Beyond the market”, does not recommend the “opportunity cost” approach and issues a preference for the “Quality-adjusted replacement” approach. What do you think about this position?

Step 4: Going further

What would you expect of the incorporation of nonmarket production in GDP in terms of gender inequalities?

Now that you are familiar with accounting for nonmarket production in satellite accounts how do you interpret the experience of Philippines in terms of gender inequalities (figures 4, 5 and 6)?

Figure 1: Household Production GDP Using Various Compensation for nonmarket Labor, 1985-2004

Figure 2: Specialist Wage Rates and Quality Adjustments

Figure 3: Hourly Compensation and Wage Rates for Selected Groups, 1946-2004

Figure 4: Alternative estimates of household production time input in Phillipines

Figure 5: Contribution of women in Philippines’ conventional GDP

Figure 6: Contribution of women in Philippines’s adjusted GDP

Only consider “option A” (based on estimations from the Time Use survey)