National Income and the Value of Labor Services

In the first half of the twentieth century, interest in counting non-market work occasionally cropped up only to wilt beneath the disapproving eye of economic orthodoxy. National income accounting and efforts to assign an economic value to human lives built upon the restrictive and gender-biased assumptions of prior census and labor force studies.

One of the first efforts to develop a national accounting system for the U.S., sponsored by the National Bureau of Economic Research in 1921, essentially followed William Smart's recommendation, estimating the number of women primarily engaged in housework without monetary remuneration in 1910 and multiplying that by the average income of persons engaged in the paid occupational category of Domestic and Personal Services. The study concluded that the value of housewives' services had declined from 31 percent of market national income in 1909 to 25 percent in 1918.⁴⁵ A similar imputation exercise can easily be applied to a much longer historical period.⁴⁶

Subsequent efforts to construct national accounts ignored the issue, perhaps because they were driven by concerns regarding market income and expenditures. The Great Depression created concerns about disequi- libria in the labor and credit markets. In his famous efforts to explain these,

John Maynard Keynes completely ignored non-monetary assets and non-market work, despite their potential contribution to the living stand­ards of families struck by unemployment. With the outbreak of World War II, governments needed a clear picture of their tax base in order to estimate the tax revenues that would constrain their military expenditures. Modern national income accounting grew out of efforts to finance war.⁴⁷

Simon Kuznets took the lead in efforts to develop accounts that could shed some light on patterns of international economic development.⁴⁸ He warned repeatedly that his measures of Gross National Product omitted the value of non-market work, and were therefore incomplete.

A similar trajectory is evident in efforts to assign a value to humans themselves. William Farr, the early director of the British census, had argued that the capital value of the population could be represented by the discounted value of future earnings ‘‘less the value of the subsistence of the labourer as child and man.” Since relatively few married women worked for wages at this time, their valuations would necessarily be lower than those of married men. Farr sidestepped this issue by averaging total earnings across the population to arrive at a per person measure of about 110 pounds sterling.⁵⁰ Later efforts to capitalize the value of human life assigned the value of future earnings to the individuals receiving them, resulting in a much higher average valuation for men.

In both the U.S. and Britain, the growth of the life insurance industry and law suits seeking to recover damages for wrongful injury or death was shaped by English common law, allowing damages to family members for the probable value of the services of the deceased from the time of his death (net of maintenance costs), but no compensation for emotional losses. By the end of the nineteenth century even young children in the U.S. could be insured for a sum equivalent to their prospective net earnings.⁵¹ By this measure, young boys were considerably more valuable than young girls.

Louis Dublin and Alfred Lotka's The Money Value of a Man, first pub­lished in 1930, offered a detailed justification and extension of calculations based on earnings net of maintenance costs. In the same year, Irving Fisher, writing in a more theoretical vein, argued that the costs of actually pro­ducing human capital needed to be taken into account.⁵² Dublin and Lotka, more attentive than Fisher to the empirical problem, confessed the limita­tions of their methodology, especially where the valuation of adolescent lives was concerned.

Yet they could have provided a lower-bound estimate by adopting the replacement cost approach suggested by the earlier National Bureau of Economic Research study, as well as by Margaret Reid. A better explanation for Dublin and Lotka's decision emerges from their reluctance to view childrearing as an economic activity: ‘‘The bringing up of children is not altogether a voluntary enterprise, entered upon with deliberate forethought and casting of a balance sheet of the profit and loss to be expected. It is a situation forced upon men and woman by innate instincts.''⁵⁴ Lust, in other words, should take the blame.

Ironically, the costs of raising children could also be crossed out for the exactly opposite reason. Perhaps parents had already taken the costs into account, balanced against and entirely repaid by the subjective benefits— love and adoration of the little darlings. In a classic treatise of public finance published in 1938 Henry Simons wrote, ‘‘it would be hard to maintain that the raising of children is not a form of consumption on the part of parents, whether one believes in the subsidizing of such consumption or not.''⁵⁵

The notion that children could be treated like luxury goods was chal­lenged eloquently by economist William Vickrey in 1947, in an explicit rebuttal of Henry Simons:

This reduction of children to a status comparable to that of a household pet is hardly acceptable. Almost everyone will concede that the commu­nity has a greater interest in the welfare of children than in the welfare of pets, even though there may be widespread disagreement as the nature of that interest. A more satisfactory approach, on the whole, is to regard minors and other dependents as citizens in their own right.⁵⁶

Vickrey had a point. But he missed the opportunity to point out that the community's interest in the welfare of children derives not just from their citizenship, but also from their future productivity as workers and taxpayers. Resources devoted to children represent an investment in every­body’s future, not just their own.