GDP is an important indicator of a country's economic activity, but it does not include all production behaviors. For example, unpaid labor within a household, such as cooking, taking care of children, cleaning, etc., is not included in the scope of GDP accounting. This is because the basic logic of GDP accounting is "market-based exchange", that is, only goods and services traded through the market can be counted. Of course, if a resident hires others or buys paid services to complete these activities, then they will be counted in the GDP.
The U.S. Department of Commerce has published a "Study of National Accounts**" that introduces the methods and principles of GDP accounting. The ** points out that in addition to "market exchange-based" production behavior, GDP also accounts for the self-sufficiency production of producers to satisfy their own consumption and fixed capital formation, as well as the self-sufficiency production of knowledge-based products by producers in order to satisfy their own final consumption and fixed capital formation. However, subsistence production within the household sector, i.e. household labour, is not counted.
In 2020, the pandemic hit around the world, leading to lockdowns and quarantine measures in many countries and regions, business shutdowns, a surge in unemployment, and a significant increase in the amount of time residents spent at home. In this case, the amount of household work also increases. Some American scholars have published research that argues that the contribution of these household workers to economic activity should be accounted for in GDP. They propose that if the value of these household labors were to be estimated in terms of the market, the U.S. economy would decline by 3 in 20224% to 09% or so. This means that household production can effectively mitigate the effects of the recession.
However, this is only the assumption and suggestion of American scholars, and does not mean that the US Department of Commerce has changed the standard of GDP accounting. In fact, the 2022 economic data released by the U.S. Department of Commerce still shows that the U.S. economy fell by more than 3 percentage points. Some people misunderstand the ** of American scholars, and even spread rumors that the United States is including housework in the scope of national accounts in order to increase GDP. This is incorrect and irresponsible.
In addition to domestic work, there is another type of production that has also attracted attention, and that is the service of residents' own housing, that is, virtual rent. Virtual rent means that residents live in their own houses, although they do not pay rent, but they are equivalent to enjoying housing services, so they need to pay a virtual rent as the value of housing services. U.S. GDP accounting includes fictitious rents, and they are calculated on a market** basis. In other words, the U.S. will estimate the service value of resident-owned housing by referring to the market rent of similar houses that can be rented.
Some people believe that China does not have statistics on virtual rents, which is unfair and unscientific. Actually, this is a misconception. China's National Bureau of Statistics (NBS) has made it clear when it publishes its GDP report that it accounts for the housing services provided by owner-occupied housing. However, China uses a cost approach, not a rent approach. The cost method refers to the calculation of the value of housing services based on the actual cost of owning a home, such as depreciation, maintenance, insurance, etc. This is based on China's national conditions and data reliability.
Of course, China is also constantly improving its GDP accounting methods. At the beginning of this year, the National Bureau of Statistics (NBS) announced the revision of China's National Accounting System (2016), one of which is to use the market rent method to calculate the output of urban residents' self-owned housing services. This means that China is gradually changing to a market-leading approach. However, in the case of resident-owned housing in rural areas, the cost method is still used to account for fictitious rents. This is due to the fact that the rental market for housing in rural areas is not well developed and market rent laws are difficult to enforce.
In short, GDP accounting is a complex science, and reasonable standards and methods need to be formulated according to the actual situation of different countries and regions. We cannot simply compare the GDP data of different countries, nor can we believe some unfounded rumors. We should objectively understand the principles and processes of GDP accounting and correctly evaluate the state and trends of economic activity.