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What is Parenting Worth? July 10, 2006

Posted by federalist in Economic Policy, Finance, Human Markets, Social Politics.
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We all had a good laugh when Salary.com suggested that the fair wage for a stay-at-home mother is $134,121, not least because while they suggested that every mother spends time as a CEO and a Psychologist, they neglected to mention her valuable work in the oldest profession.

There is, however, an interesting question along those lines: What is parenting worth?  We often forget that people are productive resources.  Therefore, producing people is itself a productive endeavor.  So what is the marginal value of producing a typical person?

Current U.S. per capita GDP is approximately $40,000.  This means that the average person today is “producing” $40,000 every year of his life.  Since the average American today will live to be about 80, let’s take a discount rate of 5% per year, assume production is evenly distributed over a lifetime, and then the present value of a new person is about $780,000.

(This is, of course, just the average value of a new American.  If you’re a great or lucky parent maybe your kid will produce millions.  If you’re a negligent or unlucky parent, your kid may end up being a net drain on GDP.)

Suppose I’m an eccentric scientist, and I announce that I am going to spend 20 years developing a machine.  This machine will possess true artificial intelligence.  It will be capable not only of performing any task that can done by humans, but also of learning new skills and making completely new discoveries and inventions.  Once built, it will actually maintain itself over its entire productive life of fifty years.  And as you might have guessed by now, this machine will even be able to self-replicate, although its replication cycle will consume about 20 years of its productive life.  Sounds fantastic, doesn’t it?  I guess it does, until you find out that this machine will not only keep all of its money for itself, but will also dump you in a nursing home as soon as you become a nuisance.

So suppose you’re a married woman wondering whether you should spend the next 20 years working fulltime or raising two children fulltime.  If you’re thinking about your own disposable income, there’s no contest: Not only are you giving up direct income, but you also end up diverting hundreds of thousands of your husband’s income towards raising your kids.  If you give up a $50k-a-year income and spend the average $10k-per-child-per-year that is typical in the U.S., the present-value opportunity cost to you of raising two kids is almost $900,000.

But say you’re an altruist, fascist, or something like that and you care not about your own standard of living but about the productive capacity of our civilization.  The present value of your production over those 20 years is $640k.  Meanwhile, the present value of each of your children, assuming they will each produce at the same rate as you, is $350k.  If you were to just have two kids, it kind of looks like a wash — especially when you factor in a reality ignored in these simple models, which is that people tend to be most productive earlier in their life … right about when women take off to raise children.

So I guess the moral of this analysis is: It is counterproductive to take time off from work to raise a family unless you are raising more than two children, or unless you are a very unproductive worker.

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