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How Domestic is GDP?
Subject Measuring economic welfare
Topic National Income Accounts
Key Words GDP, Economic Growth
News Story

One of the most important and widely used economic indicators is Gross Domestic Product (GDP). GDP is a measure of the value of goods and services produced in the United States in a given year. GDP is used to measure economic growth and economic welfare, among other things. Critics have voiced limitations of the GDP as a measure of economic wellbeing. However, economic welfare depends upon many factors only some of which are included in GDP. For example, GDP does not include the value of household production such as preparing meals. Responding to this criticism, a study by the Office for National Statistics in Great Britain focused on the amount of unpaid work that takes place in the British economy. According to the study, GDP would have been between 44 and 104 percent higher if unpaid work, such as babysitting, childcare and household maintenance would have been included.

The Office for National Statistics study found that the average adult spends almost twice the amount of time per day performing unpaid in comparison to paid work. The study covered a large number of people who are not typically considered to be in the labor market; such as retirees and homemakers. Activities considered in the study's definition of unpaid work included shopping, gardening, looking after children and volunteer work. The definition also included transportation, such as bringing children to school. On average, unpaid work amounted to 280 minutes per week compared, with 150 minutes of paid work per week.

Various women's groups have been pushing for such a study. They have argued that housewives' work is productive and should be counted in GDP calculations. Local pressure followed the 1995 Beijing Conference on Women that produced a United Nations requirement that member states develop national income accounts that measure housewives' services. Economists are generally very skeptical of the measure and its utility. They criticize the assumptions behind the measure and the usefulness of the enhanced figures.

(Updated November 1, 2000)

Questions
1.

Explain briefly the approaches used to calculate GDP.

2. The British study assumed that every kind of work that could be purchased in the market should be included in the calculation of GDP. For example, if you mow your lawn and a commercial service charges $20 for that task then your work should be valued at $20. How would you then value a housewives services? What are some of the market measures that you would use?
3. There was considerable variance in the GDP measure including unpaid work -- the increase was between 44 and 104 percent. Do you see any problems in incorporating these enhancements given its wide variability?
4. What are some of the other limitations of the current method of measuring GDP?
Source David Turner, "Statistics put the domestic back into GDP," The Financial Times, October 14, 2000.

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