Time allocation and home production technology

This paper studies the effect of the relative productivity between the market sector and the home sector on time allocation. A novelty of the paper is to jointly estimate home productivity and the elasticity of substitution between market goods and home hours, which is accomplished through structural estimation based on income-decile level data. With a high elasticity of substitution and a slower growth rate of productivity in the home sector relative to the market sector, the model can produce key data patterns of time allocation in both the cross sections and time series. Quantitatively, relative productivity can account for 32% of the variation in market hours and 18% of the variation in home hours.