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Lecture notes Economics of consumption, welfare and society
Lecture notes of the course Economics of consumption, welfare and society (ECH-22306).
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ECH-22306: Economics of consumption, welfare and society – LecturesLecture 1: Consumption and time
Neo-classical economics
Result: increased utility due to more consumption of goods
Time in the NHE (New Home Economics)
Result: increased utility due to consumption of more goods and/or leisure
Income elasticity
Income elasticity of a good (e) = percentage change in expenditures on the good
per percentage change in income
o e < 0: inferior good
o e > 1: luxury good
o 0 < e < 1: necessary good
o Income elasticity of total consumption =1 (with constant savings ratio)
Income elasticity of time used in an activity (a)
o a < 0: inferior activity time devoted to the activity will decline when
income risesti
o a > 0: normal activity
o income elasticity of total activity = 0 (because available time is
constant)
One may possibly buy more of everything but one cannot do more of everything average
e > average a
,Good-intensive activities VS time-intensive activities
When income goes up and time becomes more scarce, the consumer spends more
on good-intensive activities
When income goes down and time becomes less scarce, the consumer spends more
on time-intensive activities
Conclusions
In a household, not only income matters, but also time
Your income can expend, but your time not
The relative price of goods and the relative price of time have a big influence on
consumption
The wage rate has impact on the substitution effect and on the use of time
The availability of time and increasing income has induced goods-intensive
consumption of leisure time. This has several implications for time use during the
family-life cycle (where income and time varies across periods).
Lecture 2: Time use
Two main parts:
Modernization and time allocation economic approaches
Time use and time use studies (especially in the Netherlands)
Modernization and time allocation
Modernization of a society is not only reflected in consumption, but also in the changes in
time use or the allocation of time.
There is an increase in life expectancy the two main reasons for that are good nutrition
and better hygiene/clean water.
There is an increase in level of education rise in human capital, this is the most
important capital in society.
Time allocation
Time allocation says something about what is happening in society.
Time allocation can be over the day, week, year or life cycle
Time allocation over the life cycle is very important
Household work contains management component, planning & organization this is
often forgotten
, Housespousery = the house work done by spouses (male or female) as a declining
industry
Household work in general is going down, household work done by men is relatively
going up, household work done by female is relatively going down
Leisure is going down increasingly time pressure
These trends can be explained by the NHE (New Home Economics)
NHE (New Home Economics)
The household is a small firm, acts perfectly rational and has task specialization according to
comparative advantage the person with the higher wage rate works outside the home and
the person with the lower wage rate does the household.
Hw = paid work
Hh = household work
Hl = leisure
Pw = wage rate = price of one hour of paid work = price of one hour of household work =
price of one hour of leisure = opportunity cost = foregone earning If the wage rate goes
up, household and leisure becomes more expensive/ the opportunity costs for household and
leisure go up
Pse = production substitution effect
Cse = consumption substitution effect
Ie = income effect
Product substitution effect (pse) = work / leisure trade-off
As pw increases, Hw (paid work) increases and Hh (household work) decreases
Consumption substitution effect (cse) = income / leisure trade-off
As pw increases, Hw (paid work) increases and Hl (leisure) decreases
Implications for household division of labour:
Situation A: when wage rate of the man is higher than wage rate of the woman the
man specialises in paid work
Situation B: when wage rate of the woman is higher than wage rate of the man the
woman specialises in paid work
Until now, situation A was very dominant even with equal educational level of
spouses. This can be attributed to motherhood culture = mother thinks that her
care for children is indispensable or better than the one of the father or someone
else and the working of the marriage market = females marry males who are
older and who have therefore more work experience
However, in the future situation A may become less dominant: rising share of
female higher educated NL solution: part-time jobs, especially women when
they are mother even when her wage is higher than for the man
Time use and time use studies
SCP time use studies (tijdbestedingsonderzoek)
Conclusions from the interpreted tables:
1975-2005: decline in leisure, since 2006: increase in leisure
Individual division of time during the life course: before you have a job, you have
relatively much leisure when you have a job you have relatively less leisure
when you are retired you have relatively much leisure
, Time allocation of women and men in the Netherlands (1980-2000):
o Women: hours per week spent on labour increased, spent on education
increased, spent on household and care activities decreased
o Men: hours per week spent on labour decreased, spent on household and
care activities increased
Time allocation of with or without children living at home in the Netherlands (1980-
2000):
o For couples with children and couples without children, hours per week spent
on leisure is decreased
o Couples with children spent far less hours per week on leisure than couples
without children couples with children are in the ‘rush of life’
Results:
Women change from household work to paid work:
o Females are better educated
o Females get higher wage than in the past
o Differ in taste higher educated females don’t like the household work
Smaller families more singles with or without children (separation/divorce)
More labour-saving devices in the household (bijv. washing machine, dishwasher,
microwave)
Technological change can make household work (Hh) higher (higher quality) or
lower (labour saving)
Increased real income
Wide availability of ICT: information seeking on the internet, midnight shopping and
bidding
Other reasons for changes in the leisure market: depillarisation (verzuiling) waning
(dalende) impact of Christianity, change in working and shopping hours
Despite highly busy life, there is more parental attention to children quality time
issue, ‘high quality kids’
More time pressure both objective and subjective
Rise in the labour force participation more time devoted to commitments
(verplichtingen), especially paid work
20-49 years is the busiest group people in the ‘rush hour of life’: people in work,
parents with children and task-combiners (bijv. students with also a job)
Collective rhythms keep te same (bijv. eating at 18.00, going to bed at 23.00)
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