Responses of Time-Use to Shocks in Wealth During the Great Recession

Abstract

Shocks to income and wealth decrease the household’s monetary budget available. As a consequence, households respond by decreasing consumption spending. Income shocks, such as unexpected unemployment and retirement, also increase the time-budget available in addition to decreasing the monetary budget available. Some research has suggested that the additional time available enables households to substitute home production for purchased goods and services, effectively increasing their well-being beyond what a measure of spending would indicate. We aim to expand on this research by using data on time-use with data on categories of spending, which has the potential to be much more informative than data on time-use alone: the combination can show substitutions or complements of time for spending. We use wealth shocks in house values induced by the Great Recession to show the extent to which households adjusted home production in response to those wealth shocks. We found some adjustment in the population age 65 or older, but none in the population age 51-64. This implies that younger households experiencing a wealth shock only find very little opportunity, if any, to buffer the welfare losses resulting from reductions in spending on market-purchased goods by increases in home production. Older households were able to compensate modestly.