Changes in Home Production and Trends in Economic Inequality

Previous studies of trends in inequality have ignored changes in the distribution of home production. This paper asks whether including the value of home production affects the trend in inequality of families. During the 1980s household money income grew at a slow rate but inequality increased. At the same time home production declined somewhat overall, but it declined more for high income households than for low income household. Using Panel Study of Income Dynamics data we develop three methods to adjust household money income for the value of home production. We then compare trends in the level and distribution of these measures of adjusted income to the trends in the level and distribution of money income. Income adjusted for the value of home production is more equally distributed than unadjusted income, but inequality of adjusted income grew during the 1980s. These conclusions are the same regardless of the method for adjusting income.