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How Does Household Production Affect Earnings Inequality?: Evidence from the American Time Use Survey

  • Harley Frazis
  • Jay Stewart

Although income inequality has been studied extensively, relatively little attention has been paid to the role of household production. Economic theory predicts that households with less money income will produce more goods at home. Thus extended income, which includes the value of household production, should be more equally distributed than money income. We find this to be true, but not for the reason predicted by theory. Virtually all of the decline in measured inequality, when moving from money income to extended income, is due to the addition of a large constant--the average value of household production--to money income. This result is robust to alternative assumptions that one might make when estimating the value of household production.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_454.

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Date of creation: Jun 2006
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Handle: RePEc:lev:wrkpap:wp_454
Contact details of provider: Web page: http://www.levyinstitute.org

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  1. Peter Gottschalk & Susan E. Mayer, 1997. "Changes in Home Production and Trends in Economic Inequality," Boston College Working Papers in Economics 382, Boston College Department of Economics.
  2. Jens Bonke & Mette Deding & Mette Lausten, 2009. "Time and Money," Journal of Happiness Studies, Springer, vol. 10(2), pages 113-131, April.
  3. Jenkins, Stephen P & O'Leary, Nigel C, 1996. "Household Income Plus Household Production: The Distribution of Extended Income in the U.K," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 42(4), pages 401-19, December.
  4. Gronau, Reuben, 1987. "Home production -- A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 4, pages 273-304 Elsevier.
  5. Gronau, Reuben, 1980. "Home Production-A Forgotten Industry," The Review of Economics and Statistics, MIT Press, vol. 62(3), pages 408-16, August.
  6. Johnson, David & Shipp, Stephanie, 1997. "Trends in Inequality Using Consumption-Expenditures: The U.S. from 1960 to 1993," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 43(2), pages 133-52, June.
  7. Peter Gottschalk & Timothy M. Smeeding, 1997. "Cross-National Comparisons of Earnings and Income Inequality," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 633-687, June.
  8. Dirk Krueger & Fabrizio Perri, 2005. "Does income inequality lead to consumption equality? evidence and theory," Staff Report 363, Federal Reserve Bank of Minneapolis.
  9. Brooks Pierce, 2001. "Compensation Inequality," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1493-1525, November.
  10. Bonke, Jens, 1992. "Distribution of Economic Resources: Implications of Including Household Production," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 38(3), pages 281-93, September.
  11. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, vol. 15(2), pages 211-245, February.
  12. Andrews, Donald W. K., 1991. "Asymptotic optimality of generalized CL, cross-validation, and generalized cross-validation in regression with heteroskedastic errors," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 359-377, February.
  13. Harley Frazis & Jay Stewart, 2007. "Where Does the Time Go? Concepts and Measurement in the American Time Use Survey," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 73-97 National Bureau of Economic Research, Inc.
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