Leisure, Home Production, and Work--the Theory of the Allocation of Time Revisited

The paper tries to formalize the trichotomy of work in the market, work at home, and leisure. Time is used at home to produce home goods that are perfect substitutes for market goods, where home production is subject to diminishing marginal productivity. An increase in the market wage rate is expected to reduce work at home, while its effect on leisure and work in the market is indeterminate. An increase in income increases leisure, reduces work in the market, and leaves work at home unchanged. These conclusions are supported by empirical tests based on the Michigan Income Dynamics data, as well as by previous time budget studies. Further implications for labor supply, fertility, gain from marriage, demand for child care, and the measurement of home output are investigated.