ECONOMICS AND MANAGEMENT DECISIONS

ASSIGNMENT

Why are the services of housewives not included in national income? Are there any countries including it and how are they measuring it?
A.) Why are the services of housewives not included in national income? Calculation of GDP involves the summation of value added at each stage of production or any process. A thing once considered should not be added again since it would give a false projection of the growth. When considering a household, to calculate the value being added, we have to take the entire household as a production unit. The vegetables which we generally grow at the backyards of houses for personal consumptions .If we had not grown the vegetable we would have bought it from the market. All the jobs done by the inmates of a house that eliminates buying of a service or product should be considered. But the problem is that it is difficult to take them into consideration since it is very difficult to quantify each of the activity and thus it goes unreported in the accounting framework of the System of National Accounts (SNA). Goods and services produced by households for their own consumption are excluded in the estimation of Gross Domestic Product .Only final economic goods and services are included in the estimates of GDP. Goods and services are economic if they are marketed. Goods and services produced for own consumption by households are not marketed. Therefore they are not economic. Therefore they cannot be included in GDP .If the goods produced are not marketed then it is difficult to measure in economic terms. Similarly the contribution housewife to the economy and welfare is invisible and hence is not reflected in the national income. B.)Are there any countries including it and how are they measuring it? The Norwegian national accounts (1935-1943 & 1946 1949) included estimates of the value of unpaid household work. It was also considered in Scandinavian countries. Philippines is also using special satellite accounts that can be linked to but are separate from the SNA accounts to account for the income of household in GDP, in recognition of the limitations of the central framework in addressing specific aspects of economic life important to a specific country. The SNA 1993 recognized household production of goods and services for own consumption as economic activity. They "expand the analytical capacity of national accounting for selected areas of social concern in a flexible manner, without overburdening or disrupting the central system". It has been regarded as a realistic compromise between the advantages of tradition and the adaptation of new economic, social and political requirements. Valuating the output of goods or services produced for own use using input approach in which wage rates has been applied to the time-use on these activities is well pronounced nowadays. This requires the information on the time put in by the housewives

and the corresponding rate at which this time or its proper parts are to be evaluated. Weekly person-hours may be converted to person-years (N) and average annual rate of earning (E) is obtained for evaluation. Choice of E differentiates one method from the other for evaluating the household services. E is taken to be either the opportunity cost of the housewife or the cost of hiring a single individual to do all the household work, or if N is split into its proper parts, for example, time devoted to cooking and preparation of food, house cleaning, taking care of family members, shopping etc. say Ni and each function is separately evaluated by the corresponding nearest market alternatives (Ei), thus instead of NE , Summation Ni and Ei gives the measure of the household services. In order to value the non-market household production a specific valuation of the services he or she has actually produced is to be known. This can be found by examining the nature of the service actually produced and measuring the wages of market workers who produce a similar kind of service. The alternative group of imputations, which seek to do this, is commonly referred to as the opportunity cost. It imputes to household work time the wage the unpaid household worker would earn in the market if he/she would choose to give up household work and take up employment. This the micro-economic theory rests on number of assumptions, namely, rational behaviour of utility maximizing well informed individuals, having choices and choosing freely in a competitive market, reaching equilibrium conditions etc. In practice these assumptions are rarely met because of labor market and household functioning constraints. One disturbing result of valuations based on the opportunity cost of time is that a same household activity commands different values depending on who performs it; for instance, the value of dish-washing is higher if the person performing the activity is a professor or only attended primary school.