Answer to Question #235657 in Macroeconomics for Ali Hashim

Question

In recent decades, women have worked more hours in paid jobs and fewer hours in unpaid housework.
a. How would this increase in work hours affect GDP?
b. Explain why this increase in measured GDP will overstate the true increase in output. Also explain how a set of augmented national accounts which includes home production would treat this change from nonmarket work to market work.
c. Explain the paradox, “When a person marries his or her gardener, GDP goes down.”

Answer 1

(a). The increase in work hours of women from unpaid housework to paid in jobs have increased the measurement of GDP because the unpaid housework does not accounts for the measurement of the GDP as it does not lead to produce any good and service and hence remains unaccounted but the work hours that women put in work in the market lead to the production of some good or service which is marketable and hence is considered in the measurement of the GDP. 

The set of augmented national accounts which includes home production would treat this change from non market work to market work as the women working for paid jobs would account for the increase in production of goods and services in the market which are considered for the measurement of GDP. While the work of the women working for unpaid household chores will not be considered in the production of goods and services and hence will not be accountable for the measurement of the GDP and will be considered non-market. 

(b.) This increase in measured GDP will overstate the true increase in output as it does not take into account the lost output due to women leaving the household unpaid chores to work in the market but it considers the women's paid work in the market. The household chores of the women are not accounted for the measurement of GDP but surely affects the output in the economy. In this way , We can say that the GDP will overstate the true increase in output.  

(c). “When a person marries his or her gardener, GDP goes down.” 

This statement can be explained as that when a person marries his or her gardener , he was earlier paying his/ her gardener for their services and hence that was being included for the measurement of GDP but when the person married his or her gardener then the person got his or her services for free which does not generated any income and hence it does not accounts for the measurement of the GDP. This will result in the fall in the GDP.