Home Production,House Values,and the Great Recession

Traditional labor supply models grounded in the trade-off between labor and leisure are incomplete to the extent that they neglect time spent in home production: productive labor that is not exchanged in a market setting. Models that do incorporate home production typically predict a negative relationship with the wage rate, a relationship emphasized by most analyses of time devoted to home production during recessions. However, empirical studies of the behavior of home production over the business cycle find that home production is relatively acyclical. The prominence of the fall in house values during the Great Recession suggests an alternative driver of hours dedicated to home production: non-labor endowments and assets, specifically housing equity. This paper explores the role that changing house values play in determining time dedicated to home production using the American Time Use Survey. It concludes that on the margin, time allocation responds to changes in house values in the anticipated way only under certain conditions. Specifically, when non-owners are excluded from the analysis the anticipated results do not hold. Some suggestions to explain this result are provided, as well as a discussion of future clarifying research.