The Workforce Participation Myth

Work is work whether it counts toward GDP or not

Whatever your position on gender roles and economics, there are a few things almost everyone can agree on. One is that between the 1960s and 1980s, American women achieved escape velocity, left domestic gravity behind, and entered the workforce, thereby tapping into a vast reserve of labor and propelling economic growth. Whether this is good or bad or neutral, basically everyone agrees that the US added workers.

But what if it isn’t true?

It’s true in a sense that the numbers on the chart aren’t strictly falsified, perhaps, but they’re missing half of the story. Much of the “growth” in the workforce wasn’t truly incremental labor, but was just a shift from an invisible, uncountable column into a visible, countable, “GDP” column.

Work in the household was still work. In the 70s, women didn’t suddenly start working, they just started doing different work.

There was less work done in the household and more work done in employment, but the net incremental work done wasn’t nearly as big as looks when you only look at one side of the ledger.

It’s a big part of why middle class, two-income households can work so hard and still feel so behind. Real wages, inflation, and regulation all have roles too, but I’ve seen those discussed in more detail. I’ve never seen this acknowledged in black and white, although many people hem around the edges. Why?

HOUSEHOLD WORK IS STILL WORK

It’s a subtle thing. It didn’t strike me until we’d had several kids and one week our nanny was out sick. There was a TON to do. Cooking, cleaning, dishes, nap times, homework, household maintenance tasks, shopping, driving, laundry. I didn’t get much “work” done that week. I’d spent my whole week on house work.

“Oh, really?”

Of course, many women (and plenty of men, ackshually…) already know this at some level. An office job doesn’t make domestic work disappear. Everyone works all day and there is still plenty to get done at home in the evenings.

There just isn’t enough time. So the next step is to start outsourcing. Kids go to daycare instead of the playpen, meals come from restaurants or Kraft-Heinz instead of a pot, groceries come from Instacart instead of directly from the grocery store. Depending on status and geography, there may be some mix of a maid, a mower, a handy-man, a laundry service, tutors, pickup/dropoff service, and other household help.

There may be some truly incremental work, but it’s smaller than it seems and this has important implications for basically any preferred policy or preferred outcome related to gender roles, household formation, and middle class stability.

So what? Isn’t that just fine?

For some high earners, sure, but for the vast majority of people, this is actually massively unprofitable.

Even before you talk about less-tangible (and more-controversial) impacts: marital stress, daycare-induced childhood anxiety, atomized family relationships, broken cultural transmission lines, the health impacts of processed food, etc. it’s a losing deal. Strictly from a 100% financial, cost/benefit analysis, it’s a bad deal for the average worker.

EXAMPLE

The average individual salary is pretty close to $60,000¹ currently. It seems like adding $60K to your household income should be an easy win, right? But let’s dig in:

40 hours a week for 50 non-holiday weeks a year comes to 2,000 hours, making the gross rate $30/hour. Payroll taxes will take a chunk of that, let’s say 1/3², leaving you with $20/hour.

Still seems decent, right? Every hour you give up at home will buy you 1.33 hours of minimum wage labor at $15/hour, right?

Not so fast. Since these are “real” jobs that count toward GDP, of course, they get taxed. The people you are buying services from need to cover their own employment taxes, their overhead, and their margin. You may also need to pay sales taxes. A 10% employment tax, 50% gross margin, and 10% sales tax means the final price you pay for minimum wage help is $41.25 per hour.

You need to work TWO hours for every hour you outsource.

It gets worse if you commute. A one hour commute each way for 200 working days adds 400 hours (20%) to your working time with no extra income. Your takehome per hour drops to $16.67 and now you need to work TWO AND A HALF hours for every hour you outsource. Commuting costs like an extra car payment or train passes ratchets the ratio up further.

With this set of numbers, you need to be making $148,500 per year before you make as much per hour as it costs to outsource (and that’s undercounting actual payroll taxes, which will be closer to 50% at that income).

Now, this glosses over a lot of complexities, which I discuss below if you’re interested, but the bottom line is that, for many families, a second income is simply not profitable. You give up an hour and get a third of an hour back in help. Bad deal.

OTHER CONSIDERATIONS

The basic model fleshed out above is obviously missing a few things. If you want to dig into this further, here are a few things I’ve considered that might change the math:

1 - Partial Outsourcing: Maybe running a household is a lot of work, but it doesn’t add up to 40 hours, so there is still a gain. Sure, but at employment:outsourced help ratio of 2.5:1, you can work full time (40 hours + 10 hours commuting at $60,000/year) to get just 19 hours of help at home. Every hour outsource after that is a net financial loss.

My personal experience suggests that by the time you have 2 kids, there is something closer to 30 or 40 hours of work. You might not outsource it all, but anything you don’t outsource comes out of “leisure” time.

If you’ve heard parents complain that they are both busting their butts and still eating into their savings to pay for daycare, this model explains some of what’s happening there.

2 - Lower Household needs: Related to the point above, many people don’t actually have these kinds of demands from their household. People with older kids, fewer kids, or no kids have much lower domestic needs and the real gain from employment will be higher.

This is true and in a way that hints at the deeper implications of recognizing that “workforce participation” isn’t a full measure of work being done.

Many people have fewer children than they could because each incremental child increases the demands for household labor. If that labor is being outsourced at a loss, each additional kid increases the loss. For the average household, even if these losses are temporary, they are too steep to cover - the household cannot maintain liquidity that long. So they have fewer kids.

This may free people up - women especially, but not only - to focus more on a career and truly create incremental work. If this work comes at the cost of children and their future work however, there is an off-setting long-term loss to future labor. You get more economic growth now at the price of less economic growth in the future.

More optimistically, the fact that household demands change over time for most people suggests that these years could be arranged more profitably - an idea John Carter explores in depth here:

Depopulocalypse III – From SINK to FLOAT

3 - I Pay My Nanny Under the Table: It could be argued that the model above is wrong because so many people pay single employees in cash, rather than pay corporate overhead, employer taxes, healthcare, workers’ comp, and other benefits.

This may be a valid analysis of an individual family, but what is this actually saying? That the only way to make a two-income household function without a steep loss is tax evasion?

4 - Economies of Scale: Perhaps there are household production functions that are more efficiently managed at scale, so analyzing the workforce shift by comparing hours doesn’t accurately represent the whole picture. I don’t think that changes the model.

Services, by their very nature, don’t scale much. Most of the household labor that gets shifted is to a service, not to a product. Hours in vs. hours out accurately reflects the majority of the dynamic. For services that also have a significant overhead component, e.g. daycares which have training, credentialing, and facilities overhead, comparing labor to labor probably understates the cost of outsourcing.

In addition, many services, like plumbers, charge significantly more than minimum wage, even before taxes, margins, etc.

The only significant shift to a product that I believe exists in the model is probably in food preparation, which can be shifted from hours at home to packaged foods. There is probably some gains from a strict time/financial perspective here, although I don’t think they are as big as they seem. Microwaving a frozen dinner takes longer than making a PBJ and making Kraft boxed macaroni and cheese only saves you the time of washing a sauce pot once you know how to make the real stuff.

5 - But Working at Home Is Boring: There is something to be said for this. More, I think, than some trad subcultures want to admit, but my goal with this analysis was to stay relatively values-neutral. Whether you want to stay at home or whether you want to work, especially with kids, you will need to grapple with the fact that there is a lot of work at home that will still need to get done.

IMPLICATIONS

As alluded to a few times in this post, this model has some big implications no matter what your take on policy is. If you want to enable larger families, we need methods to do it that don’t erode family finances. If you want women working, we need tax and wage policy that make for efficient outsourcing.

There are also a wide array of cultural and health implications that are a bit beyond the scope of this essay and are more controversial.

Whatever your take, it’s important for everyone - families and policymakers - to understand that having a second person from a family join the workforce is not just a straight gain in income. There are costs associated with that move, both intangible and from a strictly financial perspective. In many cases, those costs outweigh the benefit of the extra income earned.

1. https://www.zerohedge.com/personal-finance/whats-your-us-income-percentile

2. These numbers vary heavily by income level, profession, pay type (salary vs. bonus vs. equity), state, and even city. By all means, run them yourself and let me know what results you get in the comments.