Part 1: The value of personal activity

In encouraging us to “stand and stare”, Davies wants us to engage in an activity – he wants us to be actively observing the world.

We should not consider this activity an economic activity. Although in standing and staring, the observer is using up time that could be used in some other way, and therefore has an opportunity cost, the rewards from this activity are purely mental (and might be regarded as psychological, moral, or even spiritual in nature). The benefit cannot be transferred to another person in exchange for compensation in cash or kind and, at least partly for this reason, there does not seem any obvious basis for quantifying, still less monetising the benefit. (It might be suggested that the opportunity cost of labour could serve as a measuring rod. However, this would imply that the subjective value of standing and staring was proportionate to the market value of a person’s labour, which does not seem right.)

In short, standing and staring is an activity done for its own sake, by an individual person. Some inter-personal activities share similar characteristics.

Consider the relationship with a spouse, or partner, and specifically, the companionship that such a relationship can bring. Surely an essential element of experiencing companionship is the thought that your companion wishes to be with you for the experience itself, not because that experience yields some material benefit for them.

It follows that, while you might pay for the services of someone to spend time and engage in conversation with you, companionship cannot be bought. If it were paid for, the nature of the “service” provided would be changed fundamentally.

There are other interpersonal services which might provide an even clearer illustration of the same point, but it may be safest to avoid specifics.

If follows that simply because a market exists for some activity which appears similar to an activity typically carried out on a non-market basis, it does not imply these activities are in fact essentially the same and that the market price can be used to value the activity. The purpose of the activity, and the nature of the benefits, are crucially different.

Some – many? – of the interpersonal activities that take place within households are undertaken to gain non-marketable benefits of a kind similar to that illustrated by companionship. I should stress that I do not mean by this that such activities need be a source of immediate enjoyment; the return to an unpleasant activity may take the form of the satisfaction gained from discharging an obligation or living in a way that one believes is in accordance with some general principle of good behaviour.

At the same time, of course, some household activities may carry little or no mental reward of any kind, and in such cases market values might reasonably be applied to arrive at an approximate valuation. (For me, ironing clothes and cleaning the bathroom fall most clearly into this category.)

In practice, however, it seems plausible that many household activities have, for many people, a significant element of mental reward that makes them fundamentally unlike apparently similar market activities.

Consider childcare. When you have the care of young children, a large part of your waking, non-working, life has an element of childcare. You sleep with one ear open, so to speak. (Much of the time, this duty may be discharged jointly by more than one adult – a further complication for attributing costs and benefits.)

Should all this time be valued at the rate that would have to be paid in the market to relieve parents or other caregivers of these responsibilities? Would parents really choose to do none of it, if their budget constraint was relieved and their resources were unlimited? Is there no element of obligation and/or companionship in the relationship that renders it different in kind to what would be provided by hired help?

As should be obvious, none of this is intended to cast any doubt on the great value of providing childcare, any more than of “standing and staring”. Neither is it any reason not to measure, and be concerned about, such matters as gender inequality in the time allocated to household activities like childcare. It is rather to argue that there are fundamental difficulties of principle in measuring and monetising such activities in a way that allows them to be properly incorporated within an aggregate measure of output or income.

At this point it might be objected that people can also derive psychological benefit from economic activity, particularly paid work, and this does not invalidate the use of market wages in the valuation of such activity. However, the relative attractiveness of different forms of employment will be reflected, at least in part, in the market wage that must be offered. (Less desirable jobs, for example some of those perceived as “dangerous”, pay more.) If the psychological benefits of market work are very different from those gained from household activities, as seems likely, then market rates cannot be used to infer valuations for the latter.

A second objection might be that it is appropriate for some important services to be valued and incorporated in measures of output and income even though there are no market prices upon which to base those values. Key examples could be the value of housing to owner occupiers and the value of public services, both of which are currently included in estimates of output and income.

However, it could plausibly be argued in response that the value of the services provided by an owner-occupied house are very similar to those provided by an equivalent rental property. And in the case of public services, measures of output are often available, which can be used, in combination with measures of input costs, to produce estimates of value. Therefore, in these cases, there are reasonably good proxies for market values.

Furthermore, the failure to incorporate in measures of output and income the value of the services provided by owner-occupied housing and of public services would result in a severe loss of international comparability for measures of output and income and a reduction in comparability over time.

Therefore, the key issues seem to be: first, whether inter-personal activities carried out within households are more like the case of companionship or more like the cases of housing and public services in respect of the presence of psychological benefits, and second, the relative significance of the effect on comparability of exclusion from aggregate measures.

People could reasonably differ in their responses on these issues. Responses may depend in part on the values people hold and on the purposes for which they wish to use any results. (Consider for example the likely differing needs of those undertaking short term economic management and those who wish to assess longer run socio-economic trends.)

Finally, it is worth also noting an important, but not insuperable, practical challenge that would be faced if it were desired to incorporate measures of intra-household activity into “headline” indictors of income and output.

The current estimates of the value of household activities, as incorporated in the ONS’s measure of inclusive income (part of the “Beyond GDP” agenda commended in Ed’s blog) are derived from time use as reported in the experimental Time Use Survey. This requires participants to maintain a diary for two days, is undertaken on annual basis, and currently has, I believe, an achieved sample size of around 3,000. Presumably any attempt to include the value of household activities within other headline measures of output and income would require a greatly expanded and more frequent survey, and at a time when the response to household surveys has become problematic.

I am not sure that any definite conclusions follow from these reflections, other than perhaps that measurement and valuation in this area seems highly problematic, certainly in principle, but probably also in practice.