On the Working and Time Poor: Inequality and Volatility in Income and Home Production Using Micro Panel Data

Income inequality has been on the rise in most developed countries in the last few decades. Yet, this alludes to “normal” or money income. It ignores home production, which yields an additional source of consumption possibilities, affecting the level of wellbeing for households. Summing normal income and home production, we arrive at “extended income”. Influentially, Becker (1965) hypothesized a negative relationship between home production and normal income, since home production becomes cheaper when the opportunity cost of time in terms of foregone wage decreases. This would imply that inequality of extended income is lower than inequality of normal income. Moreover, it means that home production gives households a possibility to insure against income shocks such as unemployment.

            In our paper we compare normal and extended income inequality using micro panel data on income and time use for households in the Netherlands between 2009-2015. We examine characteristics of households that rerank, where we particularly look at household composition and amount of labour supplied by the spouse. In this way we aim to refine the “working poor” debate by including a “time poor” dimension. We examine how changes in childcare policies affect female labour supply and home production. Furthermore, we exploit our micro panel data by analysing how different parts of the income distribution use home production to absorb income shocks.