“What is meant by economic progress, and how should it be measured?,” asked economists Diane Coyle and Leonard Nakamura in a recent paper, Time Use and Household-Centric Measurement of Welfare in the Digital Economy. “The conventional answer is growth in real GDP over time or compared across countries, a monetary measure adjusted for the general rate of increase in prices. However, there is increasing interest in developing an alternative understanding of economic progress, particularly in the context of digitalization of the economy and the consequent significant changes Internet use is bringing about in production and household activity.”
Gross Domestic Product (GDP) became the accepted international measure of economic progress in the 1940s. It was a good measure for an industrial economy dominated by the production of physical goods, but GDP doesn’t reflect important economic activity beyond production, such as income, consumption and quality of life, nor does it capture measures of economic welfare or utility, that is, the extent to which a service or good satisfies an individual’s wants and needs. In addition, GDP doesn’t include the value of the increasing amounts of free information goods now available in the Internet-based digital economy, including email, texts, social media, maps, apps and videos.
In their paper, Coyle and Nakamura propose an alternative approach for measuring economic progress based on how much time people spend on different daily activities - e.g., paid work, household tasks, leisure, and consumption - combined with measures of well-being while engaged in these different activities. “In an economy that is four-fifths services rather than goods, with time to consume therefore inherent in the majority of economic activity, the utility of the different uses of time seems key to understanding economic welfare as well as productivity.”
“The current changes in people’s allocation of time due to digital technology are occurring in the context of major secular trends.” Leisure time has significantly increased since the 1950s. The number of hours that men worked in their jobs decreased, while women spent fewer hours in household work as their labor participation went up. The increase of leisure time has been uneven, with individuals in lower-income occupations working fewer hours and thus having more leisure time, while those in higher-income occupations work longer hours and have less leisure time. The long-term trend is for time spent on both market and household work to continue to decline due to advances in technology, automation and productivity; and for an increase in the time spent in digitally mediated leisure and consumption activities such as online search, social media, shopping, and entertainment.
“Although economic theory typically ignores the time required to consume goods and services, the fact that the time available is limited to 24 hours a day (less sleep) is the ultimate binding constraint in the economy - and in life. Indeed, it is an identity: All the time available will be ‘spent’ in some way.” The choices people make in how to spend their time, as well as the well-being considerations that influence those choices is thus a good measure of economic progress. But, how can you do such measurements?
Digital applications are having a major impact on how we spend out time, especially on the purchase and consumption of services. For example, the time saved by using online shopping or banking instead of going to a store or bank in person could be then used in a leisure activity like streaming a movie or TV series. Or, instead of wasting time by waiting for an appointment or queuing up in a long line, mobile apps could help turn these periods of boredom or discontent into opportunities to catch up with work or personal activities.
“A challenging feature is that substitutions of this kind may be hard to pin down through time use studies. … Self-reports are one way to explore these dimensions. In principle, time use surveys can capture the primary and alternative activities people are engaged in at a given time, but this is clearly somewhat harder than ascertaining whether somebody is ironing and watching TV at the same time.”
An alternative approach to time use surveys is to ask people how much time they would be willing to spend in each activity, as a measure of the utility or value they ascribe to the activity. “How we feel while working for pay, producing at home, or at leisure encompasses all our possibilities for well-being. Indeed, time spent offers a potentially more equitable way of valuing nonmarket goods. Asking people how much they would be willing to pay for something is always skewed by how much income they have (just as markets will overly represent rich people’s preferences). But since time is the great leveler, asking people how much time they would be willing to spend could provide more equitable valuations.”
In their paper, the authors discuss a number of key challenges that need to be worked out to implement such a time-based measure of economic well-being. Let me briefly summarize two of these challenges.
Difficulty of measuring well-being. Feelings of well-being about paid and household work or even about leisure activities are intrinsically subjective, hard to quantify, and are likely to change over time. Jobs can be enjoyable or not depending on what we’re currently doing, our social attachments, status, pay and future opportunities. Similarly, some household activities are enjoyable and may feel more like leisure, like cooking a favorite dish, while others feel more like chores that we don’t like but must be done, like doing the laundry.
Leisure can be both enjoyable and productive. On a personal note, I’ve been posting a weekly blog since 2005, not because I get paid to do so, but as a way to keep up with new ideas and innovations, as well as to share what I’ve learned with others.
Monetary measures of well-being. “Despite these complexities, to a first approximation we might think that time reductions (holding output constant) in paid labor and home production - that is, in what we call ‘work’ - are an improvement in welfare.” In other words, becoming more productive in getting work done is an improvement in well-being. Conversely, taking longer to get work done, - e.g., being less productive, - decreases well-being.
“To the extent that happiness can be related to real income, and thus translated into a monetary metric, changes in happiness can be interpreted as equivalent to changes in real income,” said the authors. However, they added that social interactions, purpose, and other non-monetary metrics may be alternative dimensions for quantifying our feelings of well-being.
“The effort to come up with an additional measure of economic well-being is unlikely to have as sharp or uncontroversial a quantification as our current measures of GDP until this research agenda is much further advanced,” wrote Coyle and Nakamura in conclusion. “If there is an increasing difference between the answer supplied by measures of GDP and measures based on welfare, then it may be that a measure of welfare should become part of the system of national accounts. Establishing this additional accounting may be crucial if economists are to be able to discuss economic policy issues meaningfully, in a context in which there is growing public questioning of whether real GDP growth is an adequate measure of broad economic progress. However, this task will require a sustained dialogue between government statisticians and the economics profession at large.”
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