This article first appeared in the spring 2004 issue of the Expert Witness.
Often the simplest questions in life have the most complicated answers. Such is the case in measuring the value of non-market activity like volunteer hours, leisure time, and especially the value of a housewife. How can something so much a part of our everyday experience as “household service” be such an elusive thing to evaluate … especially in court?
Of course, at the heart of the matter is the absence of explicit market pricing for housewives. “If only,” exhorts the expert economic witness, “housewives were bought and sold on an open market like wheat futures, we could have an accurate measure of their worth.” This market oriented predilection for using prices to measure value not only drives the methods currently used, it is the source of the problems in measuring, and perhaps the source of the courts often reluctance to rely on “economic” measures of worth. To paraphrase Oscar Wilde, economists often know the price of everything, but the value of nothing.
To refresh your memory, economists have argued for two different methods to measure the value of a housewife: the opportunity cost method; and the replacement cost method.
The fundamental idea behind the opportunity cost method is “what does the household sacrifice by having the wife stay home to work?” In other words, what is the opportunity cost of the housewife’s time? If a female lawyer is earning $150/hour, and she decides to forgo an hour of work to do the dishes, the cost of that task is $150. The economist then says the $150 measures the value of an hour of housewife service.
The replacement cost approach to the problem asks: “how much would it cost to replace the services of the housewife?” The idea being one could go into the market place, find the wage for nannies, cooks, prostitutes, etc., then use these wages as the value of the housewife services. Sometimes an average is used, sometimes the wage within each specialty is used.
Both of these methods are riddled with well known problems:
- They measure the value of household services at the margin, and not the total value.
- The OC approach assumes your hours of work are completely flexible.
- The RC approach assumes the productivity of the wife and market replacement are the same.
- Both methods have a hard time dealing with full-time, long-term housewives who have been separated from the labor market for years.
- Both methods rely on often arbitrary measures of time devoted to household services.
- Both methods are silent on how to treat housewife services that are not available in the market.
- Both methods have a difficult time dealing with the commingling of leisure and household services.
The list goes on. Such problems are a source of income for an expert economic witness, but there must be a better way – especially for the case of the long-term, full-time housewife where using market measures is inappropriate.
The fundamental problem with both methods is that they are based on market oriented economic theory, and as a result they ignore the institutional aspect of marriage. Marriage, as an institution, is designed to produce a set of goods that the market does not produce. Certainly some market goods get jointly produced in the marriage, but these are secondary to the main purpose of marriage. Marriage restricts the behavior of both the husband and wife such that they have an incentive over their life-cycle to cooperate in procreation and the successful rearing of the next generation. To confuse the value of a housewife with the services of domestic service misses the point entirely. The market based procedures are only crude, unreliable, and biased under-estimates of the true value of a housewife.
Within the past 25 years economists have started to move away from this purely market based way of thinking, and have started to consider the institutional aspects of exchange. This work leads to an interesting method of evaluating a housewife – one that works best in the case where the market approach does poorly. This method is simple to use, and is based on the revealed spouse choice at the time of marriage as an indicator of the value of a spouse’s contribution to a marriage.
Marriage is a sharing arrangement. A husband does not hire his wife, nor does the wife hire her husband. When the marriage is doing well both benefit, and in hard times both suffer: “for better or for worse.” Some shares are better than others. A spouse who gets a small share of the pie has little incentive to work within the marriage. The gains from an increased share to this person will more than offset the disincentives caused by reducing the share to the other spouse. Economists have shown that for a given man and woman there is an “optimal share” which creates the best incentives for the husband and wife to contribute to the marriage.
The interesting thing about the optimal share is that, with one exception, it never pays the average contribution of each spouse. For example, if one spouse were contributing 90% of the marriage value and the other spouse was contributing 10%, the optimal share turns out to always be lower than 90% for the more productive spouse. This is a good deal for the low productive spouse, but a bad deal for the partner. The only time this is not true is when each spouse is equally productive and they share 50-50.
In a marriage of unequals then, to have the optimal share means that one of the spouses is unhappy. On the other hand, to share in proportion to unequal contributions means the share is not optimal and the incentives are not right: the marriage will be low valued. In either case, there is a problem.
Couples do not marry in a vacuum. Individuals compete with one another for mates. This competition for spouses, along with the optimal sharing rule above, forces people to marry individuals they expect will make an equal contribution to the marriage. A person will always do better marrying someone of equal quality and sharing equally, rather than marry someone with of a lower quality, even though their share is higher in the latter case. The result is that in equilibrium husbands match with wives who are expected to contribute equally over the life of the marriage.
This does not mean the type of contributions are the same. The husband may be expected to work in the labor force, the wife may work in the home full time. Nor does it mean the contributions actually end up equal. It simply means that the couple believes at the time of marriage that the two different streams of services are of equal value – otherwise they wouldn’t marry. Thus this approach recognizes the most valuable contribution of a full-time housewife – giving birth and raising children. The other methods, by focusing on simple household chores, ignore the most important contribution of the wife.
Recognizing the incentives of sharing within a marriage explains why marriages have a hard time surviving large unexpected shocks like infertility or long spells of unemployment. An option to divorce is to renegotiate the share. However, renegotiation, ex post, will always imply a sub-optimal share. The spouse who ends up, ex post, more productive will always be better off finding a new mate of similar productivity.
Recognizing the incentives of sharing explains why full time working wives still tend to do more than half of the housework in a marriage. Women still earn 70% of men, on average. Since total contributions must be equal in successful marriages, women who contribute less market value to the marriage must contribute more household services.
The idea that people tend to marry equals is in our popular culture. The expression “what does she see in him?” indicates that some hidden redeeming feature must be present to compensate for an observable shortcoming.
If we accept the argument that individuals marry others of equal expected value, then we have a simple, but better, method of measuring the value of household services for marriages that remain intact. If a marriage is on-going, the partners must feel that on average they are getting out of the marriage what they are putting in, and that this marriage provides a higher value than marriages to other people. The condition for this is that the partners are making approximately equal contributions and are sharing 50-50. Thus, to determine the value of household services we need only look at the market earnings of the husband and adjust for the market earnings of the wife, and the household services of the husband. Or:
Value of housewife = Husband’s income – Wife’s income + value of husband’s household services.
Suppose the wife does not work outside the home, and the husband never does any work around the house. Then the value of the wife’s household service is simply equal to the husband’s income. This methodology is not only easier than the standard ones, it is better in that it is a true measure of value, rather than just cost. It is better because it does not have any of the ad hoc aspects of the market measures since it relies on the revealed behavior of the individuals to assess their own value.