Question

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 between 2003 and 2006 spent their time. They discovered that during the period when they were​ unemployed, the reduction in the number of hours of paid work was almost completely replaced by an increase in the number of hours spent on household production.​Source: Michael Burda and Daniel S.​ Hamermesh, "Unemployment and Household​ Production," National Bureau of Economic Research working paper​ 14676, January 2009.Based on these​ findings, what can we predict about total productionlong dash—whether or not that production is included in the calculation of GDPlong dash—in the economy when these workers became​ unemployed?

Answer 1

GDP is the sum of all final goods and services produced by an economy in a given period. In calculating GDP only the final goods and services that are traded are accounted for. Thus, household services that do not generate income are not accounted for in GDP, only productive activities. Therefore, in the long run the tendency is that the GDP analyzed by this issue will decrease, because when the unemployment rate increases, fewer workers will be employed in the productive sector. These people may substitute work for leisure or household chores, but this will not count in GDP.