Home Production by Dual Earner Couples and Consumption During Retirement

To study the role of home production in life cycle behavior, this paper creates a theoretical model in which both spouses in a couple allocate their time between market and home work. It then derives a pair of regression equations for estimating the parameters of the model, and it carries out the estimation using panel data on household net worth and lifetime earnings from the Health and Retirement Study and pseudo panel data on household consumption expenditures from the Consumer Expenditure Survey. We estimate that the value of forgone home production is roughly 10-15 cents for every dollar that a married man earns, but 30-35 cents per dollar of married women s market earnings. Our findings imply male labor supply elasticities that are very near zero and female elasticities in the range of 0.50. Our model predicts a substantial decline in measured consumption expenditure at a household s retirement, and it shows that Euler equation models of consumption behavior should include terms reflecting home production.

Life Cycle Models and Saving/Household Production/Consumption

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