Michael Burda of Humboldt University in Germany and Daniel Hamermesh of the University of Texas examined how workers in the United States who lost their jobs spent their time. They discovered that during the period when the workers were unemployed, the decline in the number of hours of paid work they did was almost the same as the increase in the number of hours they devoted to household production. Do Burda and Hamermesh's findings allow us to draw any conclusions about whether total production in the economy-whether that production is included in GDP or not \(-\) decreased when these workers became unemployed? Does your answer depend on whether the household production they carried out while unemployed were activities, such as childcare, that the workers had been paying other people to perform before they lost their jobs? Briefly explain.

Step by step solution

01

Examine the Research Findings

The study by Burda and Hamermesh discovered that when workers lost their jobs, the decline in the hours they did paid work was almost equivalent to the increase in hours they devoted to household production. This essentially means that while they weren't contributing to the economy through paid work, they were still active, but in a different area – contributing to household work.

02

Interpret the Impact on Total Production

As per the definition, GDP includes only the goods and services produced by the economy that involve monetary transactions. Therefore, the hours the workers spent on household production during unemployment do not contribute to GDP because they aren't part of the market economy. However, these activities do represent a form of productivity, and if we are considering total production (inclusive and exclusive of GDP), it would not decrease.

03

Consider the nature of Household Production

The nature of the household production carried out when unemployed can impact this equivalence. If the activities performed by the workers included tasks like childcare, for which they used to pay before losing their jobs, then the loss in monetary transactions (and hence GDP) would be offset by the corresponding decrease in their personal expenses.

04

Draw Conclusions

Therefore, strictly in terms of total productivity (including non-monetary production), the study's findings do not clearly suggest that the total production decreased when these workers became unemployed. However, it does say that the contribution to GDP (and hence the monetized economy) decreased. The answer does depend on the nature of the household production.

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