Unpaid labor means any service you perform on your own for free (like moving your lawn) that can be substituted for an actual paid service (hiring someone to mow your law). Why isn’t it included in GDP? If it were included, what percentage would it raise GDP by?
GDP is a measure of the total final goods and services produced in a period. The unpaid labour you mentioned is known as household production in economic terms. Since no money changes hands, technically there is no financial value that contributes towards the economy.
Also, as GDP is used to assess the growth and performance of economies, the data must be accurate. It is difficult to reliably measure household production.
It also includes such things as self-consumed agricultural production, which can be a significant part of the overall production in developing countries. Similarly, if you sew your clothes yourself, the production of your wardrobe isn’t included in GDP figures. Those figures would indeed be much more accurate (in particular again in third world countries) if they included unpaid labor.
As for the difficulty of estimating it, “black labor” isn’t included, either, but it might represent a significant part of actual GDP in some countries (say, in Italy) and estimates are often known.
If unpaid labour was included in GDP, women’s unpaid work in the home would increase it exponentially, its value would have to be recognised, it would become all but impossible for it to continue as “unpaid”, and capitalism (which depends on it) would collapse. There is your Feminist Economics 101 lecture in a nutshell.
We do estimate and count imputed rent in owner-occupied dwellings, so clearly “estimating and adding in” is a viable option. We could do “imputed lawn care”. It’d be as easy to estimate as rent, since there are plenty of comparable paid lawn care to base estimates on.
I think the real answer is because it’s always been this way, and since we mostly care about (real) GDP for making comparisons, if we started adding imputed production, we’d just have to adjust it back out for “really real GDP”.
Correct, and if you think about it, its the proper way to account for economic activity. Imagine a society where everyone hired a lawn service, ate meals out, and hired maids for cleaning. That would represent a dramatic increase in economic activity (with yard boys, business owners, maids, etc now being able to buy more goods and services) with increasing velocity of money around the economy.
And in a very simplified way, the faster money moves around, the better the economy. If I keep a $20 bill for a year and then buy a pair of cheap sunglasses with it, then the economy has only produced one pair of cheap sunglasses with that money during the year.
If the first day I buy a pair of cheap sunglasses, the second day the clerk at the gas station (with his paycheck) buys a pair of cheap sunglasses, the third day…and the 365th day a guy buys a pair of cheap sunglasses with that same $20 bill that’s passed around, the economy has produced 365 pairs of sunglasses instead of 1: all with the same amount of money.
You don’t make sunglasses with money. How would that economy be less productive if 365 people make themselves a pair of sunglasses?
Or, to put it another way, if me and my neighbor make a pact to pay each other $100,000/month to mow each other’s lawns, when before we were doing our own, how does that represent any sort of real change in the economy?
I thought of another way to say this: GDP is a measure of production. It’s an indicator of economic activity, in the same way degrees Celsius is a measure of temperature and an indicator of weather. If you want to talk about economic activity, you have to look at a lot of different indicators, because it’s much too complex of a system to reduce to one number. GDP looks at production, and ideally the money is irrelevant: it’s just the only unit of measurement we have for “value”.
A simple example demonstrates the inadequacy of GDP measurement. Suppose I pay your wife to do housekeeping for me one day, and vice versa. If we pay $100 per day, GDP rises by $200 every time we do this, though no net money changes hands nor does net housekeeping service change.
For that matter, wives might provide services for which a fair professional price is much higher. Perhaps this would suggest a plan to increase GDP growth measures.
I think countries do add black-markets to their GDP, at least some of them. IIRC, Italy doing this led to il surpasso.
As to the OP, I don’t think there’s a good technical reason. It’d just be really hard to do.
But who would ever actually exchange the money? If I owe you $100 and you owe me $100, we just call it even. We don’t go through the motions of writing each other checks. This exposes a potential flaw in GDP calculations, but since it doesn’t happen in real life, it’s not really a flaw.
So do you feel like imputed rent should be calculated in GDP? How is that different than owner-mowed lawns?
I think that’s the point. That is, that while people don’t write checks like that in real life, they do clean houses. That is, there’s productivity that happens that doesn’t get measured by traditional GDP measures. GDP misses this productivity because money doesn’t exchange hands, even though there isn’t any reason it couldn’t. After all, people due pay money to have their houses clean. House cleaning has a market value.
Similarily, if I make furniture as a hobby and give it away to friends, that doesn’t show up in GDP. If I do the same and sell it on Ebay, it does. But either way, its pretty obvious that the same amount of “production” happened.
FWIW: I think its a valid criticism, but trying to add that type of thing in to GDP would be so difficult as to make the measures close to arbitrary. Sometimes its more important to have a simple measure of something, even if you know its not 100% accurate.
One of the principles behind GDP measurement is that we accept market actors at their word in valuing the goods and services produced within an economy.
If the shareholders of Disney choose to pay their CEO $20 million, we accept that the CEO “produced” services worth $20 million, rather than arguing over what he/she was “really worth”. If the state hires a school teacher at $70,000 per year, we accept that he/she did $70,000 worth of teaching.
Therefore, if you mow your lawn for free, you assigned no value to it, and produced nothing which need be included in GDP. If you mow your neighbor’s lawn and get paid, he/she assigned a monetary value to it and it is therefore worthy of inclusion in GDP.
Yes, housing is unique and different, because people pay for it either upfront (buy) or one month at a time (rent)–but either way they are paying for it, and measurement will be cyclically distorted unless you treat it as all one way or all the other. (This is true of other goods as well–you can either buy or lease a car or even a computer–but housing is way more important and more cyclical in terms of the buy/rent mix.)
What if you mow your neighbours lawn, and your neighbour watches your dogs when your out of town?
When I mow my lawn, I am assigning value to it: I value a mowed lawn more than I value whatever else I would have done with that time. It’s just not easy to measure in dollars. I am totally cool with us leaving it out of GDP for practical reasons, but it’s still production. By your logic, if I planted a huge garden and lived off of it, I would have produced nothing of value because I wasn’t willing to pay anyone else to do the work.
And the issue with imputed housing is not that you pay once or you pay over time. The issue is that the house is a piece of capital that is producing a consumer service, housing. That housing can be consumed by the owner, or rented out to someone else.
I do not understand the logic that would say that this mowed lawn, that’s production because someone paid $20 for it. That mowed law over there is not, because no one paid for it. I mean, if I write myself a check for mowing the lawn, is it production then? What if I pay my kid?
Yes, that could rise to the level of an economic transaction–and you could even be taxed on it!–if you have a formal quid pro quo. Or it could be simple neighborly reciprocity. Obviously there is no sharp line between them.
It isn’t my logic, it’s the logic of economists who developed this statistic. THEIR logic is that most services which people provide for themselves and their families are (a) difficult to measure; (b) difficult to value, because there is no buyer and seller; (c) not really part of the economic sphere of human activity; and (d) of little interest to policy makers and others who use macroeconomic statistics.
No doubt more comprehensive measures could be devised which measure everything the people in a nation do, as opposed to just the things they do for market. But, no such measure has gained widespread traction.
Housing is counted both ways. Maybe this is what you meant with your post, but to make sure:
Building a new house is an investment, and it’s counted in the investment portion of GDP in the same sense that building a factory is counted as investment. After the factory is built, the products the factory makes will also be counted as part of GDP as consumption goods. The same sort of thing applies to a house. It’s built as an investment good, and after it’s operational as a dwelling, it creates a flow of consumable resources, namely, the ability to live in that house. This flow of value is included in GDP as consumption, consumed rent, calculated either from direct rent numbers or from guesstimates of imputed rent in the case of owner-occupied housing. As far as economic measurements go, building your own house can be seen as essentially identical to investing in a small factory, and then consuming the entire output of that factory yourself every month you live in it.
First a single large burst of investment, then continual consumption over the lifetime of the structure.
I’m a feminist too, but this is silly.
Do you really think women are the only people who do unpaid work in the home? Do you think their work is currently unrecognized? By who? And how in the world will it cause capitalism to collapse? What does that even mean? We’ll all become communists?
Economics is, in the end, the study of the movement of value through a system. If a thing does not produce or consume value, it doesn’t exist. Because it’s phenomenally difficult to measure real actions, almost all economic study and models reduce “value” to “money” and leave it at that. Which turns huge segments of society into meaningless cogs - e.g., economics endlessly studies selling, but buyers are mere straw men.