Provision of Care: A Challenge for Economics

The size of an economy is typically measured by Gross Domestic Product, which sums up all the monetary transactions in an economy.

Non-monetary actions like household production are not covered by GDP: to use the old classroom example, if two stay-at-home parents hired each other to do all the household tasks, then GDP would go up, but if they work in their own homes, GDP is lower. Government statisticians have estimated that if the value of household production was included in GDP, the size of the US economy would be about one-fifth bigger.

But of course, household production feeds back into the monetary transactions part of the economy in many ways. Raising children today will help make Social Security solvent a few decades from now. Providing care to someone with a disability or recovering from illness can help them enter or re-enter the workforce. In a number of paid jobs, like teachers and health care workers, some employees will provide a quality of care far higher than others, without receiving monetary compensation for the higher lifetime earnings of students or the quicker return to health of patients.

Nancy Folbre tackles many of these issues in “Care Provision and the Boundaries of Production,” in the Winter 2024 issue of the Journal of Economic Perspectives. (Full disclosure: I’ve been the Managing Editor of JEP since 1986, and so may be predisposed to find the articles published there of interest. Since 2011, all articles published in JEP, including all archives back to the first issue, have been freely available online courtesy of the publisher, the American Economic Association.)

As Folbre emphasizes, neither the costs of care nor the broader benefits of care are well-captured by a focus on monetary transactions. I can’t do justice to the full argument here, but here are a couple of comments to ponder.

As Folbre points out, we socialize the economic benefits of children through programs like Social Security and more generally through taxes paid by future workers, but we rely heavily on nonmonetary private provision of care for raising children. She writes:

The US Social Security system taxes employees to finance health and retirement benefits for retirees. These benefits, linked to the earnings history of recipients and their spouses, offer no credit for the time and money put into raising future taxpayers. As a result, the net benefits of Social Security are significantly higher for individuals who devote relatively little time or money to children, even though single-earner married couples reap higher net benefits than dual-earner or single-parent households. US public policies socialize the economic benefits of children far more extensively than the costs (Folbre and Wolf 2013). Parents—defined in terms of contribution to childrearing rather than biology—create a significant fiscal externality by raising the next generation of taxpayers (Wolf et al. 2011). While empirical research has not yet distinguished between the total contributions of mothers and fathers or impact of greater life expectancy (and thus greater take-up of Social Security and Medicare) among women, mothers clearly make larger fiscal contributions through this channel than either childless individuals or noncustodial parents who fail to provide much support for their biological children.

Folbre on the role of care provided by teachers:

However, teachers are obviously not rewarded for their individual contributions to their students’ lifetime skills, just as parents are not rewarded for their value added to their children. Likewise, nurses and doctors are not rewarded for their individual contributions to patients’ lifetime health, and social workers are not rewarded for their individual contributions to social welfare. Industry wage differentials’ net of personal characteristics partly reflect cross-industry differences in ability to capture value-added: Unlike employees in care services, employees in business services generate measurable and significant revenues for their employers, are more easily paid for performance, and earn significantly more …

Folbre on the arguments about the subjective satisfaction of care to providers, rather than recognizing the social gains from such care.

Rather than treating care provision merely as a source of subjective satisfaction, we could recognize its moral valence and productive contributions. Rather than valuing human capital as an input into market output, we could value market output as an input into the improvement of human capabilities. Rather than fighting over the distribution of costs and benefits, we could emphasize the gains from well-designed social insurance programs. We cannot accomplish these goals without expanding the boundaries of production to look inside households and beyond market dynamics. Concerns about the negative consequences of inadequate care provision in the United States are growing. As one example, a coalition of large corporations, small businesses, entrepreneurs, and investors formed a Care Economy Business Council in 2021 (https://timesupnow.org/care-economy-business-council) to “shift the cultural narrative about who is responsible for care, encourage and enforce equitable practices to support caregivers, and advocate for key public policy interventions.”