Earlier this week, I was reading a new working paper titled “Gendered Change: 150 Years of Transformation in US Hours” by L. Rachel Ngai, Claudia Olivetti, and Barbara Petrongolo. These researchers built a model of the US economy over time to try and understand how labor market changes impact the amount of hours that people spend participating in the labor market.
In their paper, they mention the fact that in order to properly model these labor market fluctuations, they needed to count informal homemaking work in the 19th century as formal labor market participation. The justification they give for this decision is that in heavily agricultural societies, this type of informal labor is actually directly related to the formal market activities of the farms these people live on.
For example, many farms that employ ranch hands offered room and board as part of the salary. These would almost certainly be provided by the wife of the farm owner, and although she would never receive a salary for her work, she directly contributed to the output of the farm.
Non-market labor activities are an extremely important part of any economy. In our most recent calculation of Ohio’s Genuine Progress Indicator, we estimate that non-market labor contributes roughly $61 billion to Ohio’s economy. If Ohio’s unpaid labor market was its own country, it would have the 84th largest economy in the world by GDP, just behind Slovenia.
This information is important to policymakers because it highlights the fact that economic output is not limited to the formal labor market. People spend a significant portion of their days creating economic value outside of the labor market. If people spend fewer of their hours on their job, they aren’t necessarily creating less economic value as a result. They’re often moving their labor from the formal market to informal markets such as housekeeping, child and elderly care, and home meal preparation.
A common example of this is labor provided by people when they spend their time volunteering. According to the Independent Sector, the current value of volunteer time nationally is $33.49 per hour, and it is rising quickly. Just five years ago volunteer time was valued at just above $25 per hour. This is extremely valuable economic activity that goes uncounted by our current system.
In Ohio, volunteering is slightly less valuable on average, with the value of volunteer time being $31.18. Still, this is significantly higher than many real jobs in the labor market. This suggests that there could even be economic gains if there was a policy that encouraged people to leave their jobs and spend time volunteering.
Another point about non-market labor is that it is not evenly distributed across our society. Caretaking for family members, homemaking, even the tasks performed by volunteers, all can be paid for by professionals in the labor market if there is enough cash available. This means that often it is people with lower incomes that end up participating in these activities, and that we are undervaluing their economic contributions.
Policymakers need to care about the entire economy, not just the labor force. While it is certainly true that the majority of economic activity takes place in the formal labor market, there is a great deal of other activity as well.