Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji jbes%2E2009%2E0004
Journal of Business & Economic Statistics
ISSN: 0735-0015 (Print) 1537-2707 (Online) Journal homepage: http://www.tandfonline.com/loi/ubes20
Nonmarket Household Time and the Cost of
Children
Christos Koulovatianos, Carsten Schrder & Ulrich Schmidt
To cite this article: Christos Koulovatianos, Carsten Schrder & Ulrich Schmidt (2009)
Nonmarket Household Time and the Cost of Children, Journal of Business & Economic
Statistics, 27:1, 42-51, DOI: 10.1198/jbes.2009.0004
To link to this article: http://dx.doi.org/10.1198/jbes.2009.0004
View supplementary material
Published online: 01 Jan 2012.
Submit your article to this journal
Article views: 80
View related articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=ubes20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 12 January 2016, At: 01:07
Nonmarket Household Time and the
Cost of Children
Christos KOULOVATIANOS
Department of Economics, University of Exeter, Exeter, EX4 4PU, United Kingdom (c.koulovatianos@exeter.ac.uk)
Carsten SCHRÖDER
Department of Economics, University of Kiel, Kiel, D-24098, Germany (carsten.schroeder@bwl.uni-kiel.de)
Ulrich SCHMIDT
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Department of Economics, University of Kiel, Kiel, D-24098, Germany and Kiel Institute for the World Economy,
Kiel, D-24105, Germany (uschmidt@bwl.uni-kiel.de)
Raising children demands a considerable amount of parental time, obliging working parents either to
reduce their leisure time further or to buy childcare services in the market. Parents may face additional
opportunity costs upon deciding to participate in the labor market, but these are difficult to measure. Using
a survey instrument in Belgium and Germany, we estimate the income compensation needed to maintain
family well-being when adults work versus when they do not enter the labor market. In both countries we
find that full-time working parents face extra child costs and require higher labor market participation
compensation compared with childless adults.
KEY WORDS: Child costs; Equivalent income; Household well-being; Parental unemployment trap;
Reservation wage; Survey method.
1. INTRODUCTION
use data. Various factors make this approach challenging. No
existing database drawn from the same sample of households
contains information about both time–use and consumption
(Gronau and Hamermesh 2006, p. 3). Even if such a database
existed, its informational content would be limited. For
example, the variable ‘‘wage’’ can be observed only for the
subsample of working people, making—effectively—a sample
selection correction necessary (Wooldridge 2002, p. 552).
Other information is not collected at all, such as the extent to
which household members share goods within the household;
the quantity/quality of domestic production; and, not least,
‘‘who gets what’’ (Browning 1992, p. 1470). As a result, to
infer prices of domestic goods, including the value of time that
adults devote to child-related activities, estimated demand
systems depend critically upon (a priori untestable) exogeneity
assumptions, assumptions on within-household sharing rules
and functional forms of household production processes, as
well as identification restrictions (for example, see Donaldson
and Pendakur 2004, 2006 for references concerning restrictions such as ‘‘equivalence-scale exactness’’ used to identify
household cost functions, and generalizations they suggest).
Our approach does not rely upon the specification of a theoretical model and thus avoids the need to make modeling
assumptions that are a priori untestable. Our survey method
requires respondents to perform a set of evaluation tasks that are
directly related to the estimation of child costs in different
household types. Similar to Koulovatianos, Schröder, and
Schmidt (2005), our approach relies on the idea that respondents,
based on their daily experiences and choices, are capable
of providing reliable assessments when asked the following
In a literature survey about how children affect the economic
behavior of households, Browning (1992) noted:
Every aspect of household economic behavior is significantly correlated with
the presence of children in the household. [. . .] children [. . .] do play a central
role in understanding all facets of household economic behavior. (pp. 1470–
1471)
A particular feature of households with children is that children must be raised by the adults in the household. Childcare
requires the investment of time, effort, and other resources on
the part of adult household members. The constraints faced by
adults in this regard are affected by the labor market participation status of the adult household members: Working adults
have less nonmarket time available for childcare and other
household production activities than do nonworking adults.
We designed a survey instrument to estimate the tradeoff
between nonmarket time and household income. This tradeoff
is given by the income compensation for a reduction in nonmarket time required to keep family well-being constant.
Empirically, we investigated whether the time/money tradeoff
is higher in households with children versus those without
children. Furthermore, we estimated child costs for households
with working versus nonworking adults. Such estimates help in
evaluating whether transfers to reduce child poverty are equitable across different household types. Examining whether
children affect labor market participation compensation enables us to evaluate whether tax allowance policies that reward
working parents create sufficient work incentives to move
parents out of an unemployment/poverty trap (for example, see
Brewer 2001, who discusses related policies in the United
States and the United Kingdom).
Econometric approaches such as those suggested in Apps
and Rees (2001) specify demand systems to estimate child
costs in different household types from consumption and time–
2009 American Statistical Association
Journal of Business & Economic Statistics
January 2009, Vol. 27, No. 1
DOI 10.1198/jbes.2009.0004
42
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Koulovatianos, Schröder, and Schmidt: Nonmarket Household Time and the Cost of Children
types of questions: Which family income level can make a
household with one working and one nonworking adult with two
children achieve the same well-being as a household with
a nonworking, single, childless adult and a monthly family
income of $1,000, in your opinion? What income would one
need if, instead, both adults were nonworking? If both adults
were working? The answers we obtain are equivalent incomes
(i.e., disposable family incomes that make the well-being of
households with different demographic composition and
labor market participation status equal). So, the time/money
tradeoff is captured by the difference between equivalent
incomes of two household types that differ only with respect to
the nonmarket time endowment (NMTE) of adult household
members.
We conducted this survey in two countries (Belgium and
Germany), focusing on two types of reductions in NMTE.
Starting from a household in which all adult members are
nonworking, we distinguished (1) a nonrestrictive reduction
in NMTE that leads to a ‘‘traditional’’ household with one
working and one nonworking adult, and (2) a restrictive
reduction in NMTE that leads to a situation in which all adults
in the household work full time. We found that the time/money
tradeoff corresponding to nonrestrictive reductions in NMTE is
typically unaffected by the presence of children in the household. On the contrary, in both countries, it was always the case
that, in response to a restrictive reduction in NMTE, the time/
money tradeoff increased whenever children were present.
As a robustness check, we used regression analysis to estimate child costs relative to an adult, after controlling for
economies of household size and also for several personal
characteristics of the survey’s respondents. Consistent with our
results just mentioned, child cost estimates are higher in timeconstrained families when compared with households in which
at least one adult is nonworking. These findings suggest that
parents may face additional opportunity costs upon deciding to
start working full time, except in one important case: when one
of the two nonworking parents decides to go to work. Accordingly, income tax allowance policies that aim to increase work
incentives need to favor working parents.
Our results also have broader implications for the building of
applied models of the household. As in Apps and Rees (2001),
both childcare time and the fact that a household’s adults can
specialize in market versus domestic activities need to be
modeled explicitly. Apart from providing such general guidelines for modeling, survey-based estimates of equivalent
incomes can be used to test the validity of identification
restrictions that demand systems impose (for example,
Koulovatianos et al. [2005] test the restriction of ‘‘generalized
equivalence scale exactness’’). Furthermore, the ‘‘calibration’’
line of research on the family, such as that noted by Aiyagari,
Greenwood, and Güner (2000) and Greenwood, Seshadri, and
Yorukoglu (2005), among others, can benefit from the additional, complementary information that a survey such as ours
adds to existing databases. For example, calibration-based
models use parameters that cannot be verified empirically as a
result of econometric identification problems (see Gronau
2006). Survey estimates of equivalent incomes add a goodnessof-fit criterion to such models and help in assessing the validity
of their parameters.
43
In the next section we describe the structure of our survey
and the samples we used. In Section 3 we analyze the time/
money tradeoffs faced by different family types, with an
emphasis on a comparison of families with children versus
families without children. In Section 4 we provide estimates of
child costs in families with different labor market participation
status. We discuss the policy relevance of our results in Section
5 and we make concluding remarks in Section 6.
2.
SURVEY STRUCTURE AND SAMPLES
Our questionnaire consists of three sections and is reproduced in the Appendix. The first section gives the respondents
an overview and explains the task they are to perform. The
second section collects some personal characteristics of the
respondents that could possibly affect their assessments.
The core questions of our survey are contained in the third
section in the form of a 20-cell table (see the Appendix). Each
cell corresponds to a particular household type characterized by
(1) the number of adults, (2) the number of children, and (3) the
labor market participation status of adults. Moving downward
within each column of the table, the number of children
increases (from zero to three children). Moving across rows
from left to right, the number of adults increases, from one to two
adults, and the labor market participation status of each adult
also varies between nonworking and working full time.
Denoting a nonworking adult by N and a full-time working adult
by W, the sequence from left to right is N, W, NN, WN, WW.
The first cell of the questionnaire’s table provides a reference
income—the disposable monthly income of a reference household with a nonworking, single, childless adult. All remaining
19 cells are left empty. Respondents are asked to fill them in
with after-tax/transfer monthly household incomes that bring all
households to the same level of well-being as that of the reference household. Setting these equivalent incomes is the central
task that respondents perform in this survey.
Implementing this survey in Belgium and Germany, we asked
our respondents explicitly to assume only adults of age 35 to 55
and children of age 7 to 11 years in the households they were
asked to consider. Moreover, we were interested in obtaining
child cost estimates for different levels of household well-being.
To this end, respondents were provided with three 20-cell tables
of the form appearing in the Appendix, each giving a different
income for the reference household. The three reference income
levels used in the questionnaire cover a broad range of the disposable monthly income distributions of the two countries. The
lowest reference income, 500 Euros (EUR), is a proxy for the
absolute poverty line (approximately the social security benefit
for single, childless adults in both Belgium and Germany). The
other two reference incomes are EUR 2,000 and EUR 3,500.
Our samples consist of 149 respondents in Belgium and 164 in
Germany. The questionnaire appeared on the Internet and was
advertised through Web newsletters in both countries. Each
respondent was offered the right to participate in a lottery, with an
expected payoff equal to EUR 5. The Belgian sample was collected in April 2002, the German sample was collected in February 2005. Table 1 presents a breakdown of the sample statistics
for both countries. The gender distribution of the German sample
is relatively male biased. In both countries, most respondents
44
Journal of Business & Economic Statistics, January 2009
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Table 1. Personal characteristics of respondents
Gender
Female
Male
Partner
Yes
No
Children
None
One
Two
More than two
Siblings
None
One
Two
More than two
Age, (years)
40
Education
Unfinished education
Elementary school
Secondary school
Special German
secondary school
German secondary school
Technical school or
university
Occupational group
Social-security recipient or
unemployed
Blue-collar worker
White-collar worker
Civil servant
Pupil/student/trainee
Self-employed
Pensioner
Housewife/houseman
Own working time
Not working
Working irregularly
Working half day
Working full day
Working time of partner
Not working
Working irregularly
Working half day
Working full day
After-tax household income
ISSN: 0735-0015 (Print) 1537-2707 (Online) Journal homepage: http://www.tandfonline.com/loi/ubes20
Nonmarket Household Time and the Cost of
Children
Christos Koulovatianos, Carsten Schrder & Ulrich Schmidt
To cite this article: Christos Koulovatianos, Carsten Schrder & Ulrich Schmidt (2009)
Nonmarket Household Time and the Cost of Children, Journal of Business & Economic
Statistics, 27:1, 42-51, DOI: 10.1198/jbes.2009.0004
To link to this article: http://dx.doi.org/10.1198/jbes.2009.0004
View supplementary material
Published online: 01 Jan 2012.
Submit your article to this journal
Article views: 80
View related articles
Full Terms & Conditions of access and use can be found at
http://www.tandfonline.com/action/journalInformation?journalCode=ubes20
Download by: [Universitas Maritim Raja Ali Haji]
Date: 12 January 2016, At: 01:07
Nonmarket Household Time and the
Cost of Children
Christos KOULOVATIANOS
Department of Economics, University of Exeter, Exeter, EX4 4PU, United Kingdom (c.koulovatianos@exeter.ac.uk)
Carsten SCHRÖDER
Department of Economics, University of Kiel, Kiel, D-24098, Germany (carsten.schroeder@bwl.uni-kiel.de)
Ulrich SCHMIDT
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Department of Economics, University of Kiel, Kiel, D-24098, Germany and Kiel Institute for the World Economy,
Kiel, D-24105, Germany (uschmidt@bwl.uni-kiel.de)
Raising children demands a considerable amount of parental time, obliging working parents either to
reduce their leisure time further or to buy childcare services in the market. Parents may face additional
opportunity costs upon deciding to participate in the labor market, but these are difficult to measure. Using
a survey instrument in Belgium and Germany, we estimate the income compensation needed to maintain
family well-being when adults work versus when they do not enter the labor market. In both countries we
find that full-time working parents face extra child costs and require higher labor market participation
compensation compared with childless adults.
KEY WORDS: Child costs; Equivalent income; Household well-being; Parental unemployment trap;
Reservation wage; Survey method.
1. INTRODUCTION
use data. Various factors make this approach challenging. No
existing database drawn from the same sample of households
contains information about both time–use and consumption
(Gronau and Hamermesh 2006, p. 3). Even if such a database
existed, its informational content would be limited. For
example, the variable ‘‘wage’’ can be observed only for the
subsample of working people, making—effectively—a sample
selection correction necessary (Wooldridge 2002, p. 552).
Other information is not collected at all, such as the extent to
which household members share goods within the household;
the quantity/quality of domestic production; and, not least,
‘‘who gets what’’ (Browning 1992, p. 1470). As a result, to
infer prices of domestic goods, including the value of time that
adults devote to child-related activities, estimated demand
systems depend critically upon (a priori untestable) exogeneity
assumptions, assumptions on within-household sharing rules
and functional forms of household production processes, as
well as identification restrictions (for example, see Donaldson
and Pendakur 2004, 2006 for references concerning restrictions such as ‘‘equivalence-scale exactness’’ used to identify
household cost functions, and generalizations they suggest).
Our approach does not rely upon the specification of a theoretical model and thus avoids the need to make modeling
assumptions that are a priori untestable. Our survey method
requires respondents to perform a set of evaluation tasks that are
directly related to the estimation of child costs in different
household types. Similar to Koulovatianos, Schröder, and
Schmidt (2005), our approach relies on the idea that respondents,
based on their daily experiences and choices, are capable
of providing reliable assessments when asked the following
In a literature survey about how children affect the economic
behavior of households, Browning (1992) noted:
Every aspect of household economic behavior is significantly correlated with
the presence of children in the household. [. . .] children [. . .] do play a central
role in understanding all facets of household economic behavior. (pp. 1470–
1471)
A particular feature of households with children is that children must be raised by the adults in the household. Childcare
requires the investment of time, effort, and other resources on
the part of adult household members. The constraints faced by
adults in this regard are affected by the labor market participation status of the adult household members: Working adults
have less nonmarket time available for childcare and other
household production activities than do nonworking adults.
We designed a survey instrument to estimate the tradeoff
between nonmarket time and household income. This tradeoff
is given by the income compensation for a reduction in nonmarket time required to keep family well-being constant.
Empirically, we investigated whether the time/money tradeoff
is higher in households with children versus those without
children. Furthermore, we estimated child costs for households
with working versus nonworking adults. Such estimates help in
evaluating whether transfers to reduce child poverty are equitable across different household types. Examining whether
children affect labor market participation compensation enables us to evaluate whether tax allowance policies that reward
working parents create sufficient work incentives to move
parents out of an unemployment/poverty trap (for example, see
Brewer 2001, who discusses related policies in the United
States and the United Kingdom).
Econometric approaches such as those suggested in Apps
and Rees (2001) specify demand systems to estimate child
costs in different household types from consumption and time–
2009 American Statistical Association
Journal of Business & Economic Statistics
January 2009, Vol. 27, No. 1
DOI 10.1198/jbes.2009.0004
42
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Koulovatianos, Schröder, and Schmidt: Nonmarket Household Time and the Cost of Children
types of questions: Which family income level can make a
household with one working and one nonworking adult with two
children achieve the same well-being as a household with
a nonworking, single, childless adult and a monthly family
income of $1,000, in your opinion? What income would one
need if, instead, both adults were nonworking? If both adults
were working? The answers we obtain are equivalent incomes
(i.e., disposable family incomes that make the well-being of
households with different demographic composition and
labor market participation status equal). So, the time/money
tradeoff is captured by the difference between equivalent
incomes of two household types that differ only with respect to
the nonmarket time endowment (NMTE) of adult household
members.
We conducted this survey in two countries (Belgium and
Germany), focusing on two types of reductions in NMTE.
Starting from a household in which all adult members are
nonworking, we distinguished (1) a nonrestrictive reduction
in NMTE that leads to a ‘‘traditional’’ household with one
working and one nonworking adult, and (2) a restrictive
reduction in NMTE that leads to a situation in which all adults
in the household work full time. We found that the time/money
tradeoff corresponding to nonrestrictive reductions in NMTE is
typically unaffected by the presence of children in the household. On the contrary, in both countries, it was always the case
that, in response to a restrictive reduction in NMTE, the time/
money tradeoff increased whenever children were present.
As a robustness check, we used regression analysis to estimate child costs relative to an adult, after controlling for
economies of household size and also for several personal
characteristics of the survey’s respondents. Consistent with our
results just mentioned, child cost estimates are higher in timeconstrained families when compared with households in which
at least one adult is nonworking. These findings suggest that
parents may face additional opportunity costs upon deciding to
start working full time, except in one important case: when one
of the two nonworking parents decides to go to work. Accordingly, income tax allowance policies that aim to increase work
incentives need to favor working parents.
Our results also have broader implications for the building of
applied models of the household. As in Apps and Rees (2001),
both childcare time and the fact that a household’s adults can
specialize in market versus domestic activities need to be
modeled explicitly. Apart from providing such general guidelines for modeling, survey-based estimates of equivalent
incomes can be used to test the validity of identification
restrictions that demand systems impose (for example,
Koulovatianos et al. [2005] test the restriction of ‘‘generalized
equivalence scale exactness’’). Furthermore, the ‘‘calibration’’
line of research on the family, such as that noted by Aiyagari,
Greenwood, and Güner (2000) and Greenwood, Seshadri, and
Yorukoglu (2005), among others, can benefit from the additional, complementary information that a survey such as ours
adds to existing databases. For example, calibration-based
models use parameters that cannot be verified empirically as a
result of econometric identification problems (see Gronau
2006). Survey estimates of equivalent incomes add a goodnessof-fit criterion to such models and help in assessing the validity
of their parameters.
43
In the next section we describe the structure of our survey
and the samples we used. In Section 3 we analyze the time/
money tradeoffs faced by different family types, with an
emphasis on a comparison of families with children versus
families without children. In Section 4 we provide estimates of
child costs in families with different labor market participation
status. We discuss the policy relevance of our results in Section
5 and we make concluding remarks in Section 6.
2.
SURVEY STRUCTURE AND SAMPLES
Our questionnaire consists of three sections and is reproduced in the Appendix. The first section gives the respondents
an overview and explains the task they are to perform. The
second section collects some personal characteristics of the
respondents that could possibly affect their assessments.
The core questions of our survey are contained in the third
section in the form of a 20-cell table (see the Appendix). Each
cell corresponds to a particular household type characterized by
(1) the number of adults, (2) the number of children, and (3) the
labor market participation status of adults. Moving downward
within each column of the table, the number of children
increases (from zero to three children). Moving across rows
from left to right, the number of adults increases, from one to two
adults, and the labor market participation status of each adult
also varies between nonworking and working full time.
Denoting a nonworking adult by N and a full-time working adult
by W, the sequence from left to right is N, W, NN, WN, WW.
The first cell of the questionnaire’s table provides a reference
income—the disposable monthly income of a reference household with a nonworking, single, childless adult. All remaining
19 cells are left empty. Respondents are asked to fill them in
with after-tax/transfer monthly household incomes that bring all
households to the same level of well-being as that of the reference household. Setting these equivalent incomes is the central
task that respondents perform in this survey.
Implementing this survey in Belgium and Germany, we asked
our respondents explicitly to assume only adults of age 35 to 55
and children of age 7 to 11 years in the households they were
asked to consider. Moreover, we were interested in obtaining
child cost estimates for different levels of household well-being.
To this end, respondents were provided with three 20-cell tables
of the form appearing in the Appendix, each giving a different
income for the reference household. The three reference income
levels used in the questionnaire cover a broad range of the disposable monthly income distributions of the two countries. The
lowest reference income, 500 Euros (EUR), is a proxy for the
absolute poverty line (approximately the social security benefit
for single, childless adults in both Belgium and Germany). The
other two reference incomes are EUR 2,000 and EUR 3,500.
Our samples consist of 149 respondents in Belgium and 164 in
Germany. The questionnaire appeared on the Internet and was
advertised through Web newsletters in both countries. Each
respondent was offered the right to participate in a lottery, with an
expected payoff equal to EUR 5. The Belgian sample was collected in April 2002, the German sample was collected in February 2005. Table 1 presents a breakdown of the sample statistics
for both countries. The gender distribution of the German sample
is relatively male biased. In both countries, most respondents
44
Journal of Business & Economic Statistics, January 2009
Downloaded by [Universitas Maritim Raja Ali Haji] at 01:07 12 January 2016
Table 1. Personal characteristics of respondents
Gender
Female
Male
Partner
Yes
No
Children
None
One
Two
More than two
Siblings
None
One
Two
More than two
Age, (years)
40
Education
Unfinished education
Elementary school
Secondary school
Special German
secondary school
German secondary school
Technical school or
university
Occupational group
Social-security recipient or
unemployed
Blue-collar worker
White-collar worker
Civil servant
Pupil/student/trainee
Self-employed
Pensioner
Housewife/houseman
Own working time
Not working
Working irregularly
Working half day
Working full day
Working time of partner
Not working
Working irregularly
Working half day
Working full day
After-tax household income