A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Huffman, Wallace E.; Lange, Mark D. Working Paper Farm Household Production: Demand for Wife's Labor, Capital Services and the Capital-Labor Ratio Center Discussion Paper, No. 408 Provided in Cooperation with: Economic Growth Center (EGC), Yale University Suggested Citation: Huffman, Wallace E.; Lange, Mark D. (1982) : Farm Household Production: Demand for Wife's Labor, Capital Services and the Capital-Labor Ratio, Center Discussion Paper, No. 408, Yale University, Economic Growth Center, New Haven, CT This Version is available at: http://hdl.handle.net/10419/160332 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu ECONOMIC GROWTH CENTER YALE UNIVERSITY Box 1987, Yale Station New Haven, Connecticut CENTER DISCUSSION PAPER NO. 408 FARM HOUSEHOLD PRODUCTION: DE.MAND FOR WI FE'S LABOR, CAPITAL SERVICES AND THE CAPITAL-LABOR RATIO Walface E. Huffman Iowa State University Mark D. Lange Iowa State University June 1982 Note Center Discussion Papers are preliminary materials circulated to stimulate discussion and critical connnent. References in publications to Discussion Papers should be cleared with the author to protect the tentative character of these papers. ,:·.. FARM HOUSEHOLD PRODUCTION: DEMAND, FOR WIFE'S LABOR, CAPITAL SERVICES AND THE CAPITAL-LABOR RATIO By Wallace E. Huffman and Mark D. Lange * The new home economics does not deal directly with household production in the common sense of the term. Most empirical studies have concentrated on labor supply aspects of time allocation and most researchers have not distinguished between leisure and work at home. Gronau (1977) and Wales and Woodland (1977), however, are exceptions. The possible distinction between leisure and household labor becomes important when nonwage (or non- income. re 1 a t e d) time' is. t h e f ocus o f ana1 ysis.- . l/ L eisure' appears to b e relatively human time intensive compared to basic household production. Also, resources allocated to basic household production may change with economic growth, especially if employment and wage opportunities for women improve (Becker 1981). Empirical evidence on capital-labor substitution in the household sector is scarce, compared to the market ~ector. The single published empirical study of capital-labor ratios in household production is by Bryant (1976). His study has several deficiencies, including the definitions of capital as the current dollar value of the stock of consumer durables and of home time as all nonincome related time.~/ The objective of this paper is to present a model of household resource allocation and econometric evidence on the determinants of absolute and relative factor intensities in household production. The households that we model have a self-employed farm business and the possibility of market wage work. Demand functions for wife's leisure, wife's household labor, capital services from household appliances and housing, and the household capital-labor ratio are fitted to micro-household data from a 1977 survey. Our econometric results show wives' household labor reacts significantly differently from their leisure to economic forces; household capital services 2 and husbands' and wives' household labor are substitutes in production; and a rise in wives' wage reduces the quantity of their household labor demanded, shifts 'rightward the demand for household capital services and raises the house- hold capital-labor ratio. Thus, rising real wage opportunities for women can be expected to increase the relative capital intensity of household production. Wives' general training (schooling) has no significant direct effect on the demand for their household labor, capital services or the capital-labor ratio. All effects of schooling are indirect through the wage-labor demand function and probability of wage work. In contrast, wives' home-specific vocational training is a substitute for their household labor and household capital services. Considerable attention has been given by economists to the substitution of market goods, including maid services, nursery schools, and schools in general, for parents' time in raising children, but very little attention has been given to nonhuman capital substitution possibilities. Our results show that the presence of young children in a.household shifts the demand curve rightward for both wife's household labor and capital services but lowers the household capital-labor ratio. Thus, young children are shown to be relatively intensive in mother's household time, as succinctly argued by Becker (1981). The rightward shift in the demand for wife's household labor and household capital services is smaller for children age 6 and older, and they have no significant effect on the household capital-labor ratio. Section one presents a theoretical model of household resource allocation. Section two contains a discussion of the data set, the econometric model and empirical definitions of the variables. The results are presented in section three, and section four contains conclusions. 3 I. A Theoretical Model of Household Resource Allocation The households that we model have a self-employed farm business, as well as the possibility of wage work. This business changes the model frcm the standard ones applied to wage earning households, as in Koster (1966), Ashenfelter and Heckman (1974) and Kneisner (1976). 1_/ Other published models of farm household behavior, e.g., by Rosenzweig (1980) and Huffman (1980), model working time of farm husbands and wives outside the household. They aggregate leisure time and household working time into "nonmarket time" and ignore household production. Bryant (1976) and Evenson (1978) have presented models where leisure time and household work are treated separately, but they have assumed that farm and household production are nonjoint. In our model, we assume that household production is an important activity (and similar to farm production) and that farm and household production may be joint. Pollak and Wachter (1975) have argued that household production itself seems likely to be joint and that this jointness should be taken into account in deriving theoretical and empirical models of household behavior. For farm households, the possibilities for joint production are much greater than for wage earning households. For example, farm output of meat, dairy, poultry, fruit and vegetables may be an input into household production. The wife's household time may simultaneously be spent preparing dinner and listening to farm market and weather information. Farm records can be prepared while super- vising children, and farm and household inputs can be purchased on the same trip to town. Finally, children may work on the farm while they are growing up. The decision unit in our model is assumed to be the single-family f aim household. To explain resource allocation, farm qouseholds are assumed to 4 behave as if they attempt to maximize household utility subject to constraints on human time, income, and a joint farm-household production function. The househol4 utility function is assumed to be a monotone twice-continuously differentiable, strictly concave function: where YH is household output, or home goods, and TL is a vector representing the 4/ leisure time of the husband (T L) and wife (T L).- To simplify the analysis, 1 2 the allocation of human time endowments of two adults, the husband and wife, are considered as choices. Husband's and wife's time are assumed to be hetero- geneous (Becker 1981, Ch. 2) and are accounted for separately in the household's time constraint. The vector of time endQWJnents is assumed to be allocated to four uses: ~here TF is farm labor, TW is market (nonfarm) wage labor, TH is household labor, and TL is leisure. Household labor is considered to be work, and it does not include time allocated to recreation, vacations, and charitable or civic activities. Time allocated to the latter activities is included in leisure time. The technology of joint farm-household production is represented by the twice continuously differentiable, strictly concave asymmetric transformation function: (3) where YF is net farm output for sale and YH is home goods, TH is the vector of husband's and wife's household labor, TF is a vector of husband's and wife's farm labor, X is a vector of purchased inputs for household and farm production, and y is a vector of environmental and fixed