PHS policies - Implementation and monitoring guide

The demand side


PHS users

The demand side is made up of various types of users, who might be, for example, of different ages (such as young parents who need childcare or the elderly.) and who might have different statuses (active, employed or retired people). It is worth noting that targeting of a group of users is often linked to the type of services. Globally, the main possible user groups are:

  • The active population;
  • The elderly;
  • Dependent persons;
  • Parents, especially women willing to re-enter or increase their participation in the labour market.

The choice by households to use PHS: the individual decision-making process

In economic theory, the individual decision-making process explains the choice by households to use PHS (theory of household production articulated by Becker; 1965). The theory states that households spend time on paid work, personal care and leisure. The time allocation between these 3 types of activities will depend on the value of each activity. Assessing the value of paid work is relatively straightforward, as wages on the labour market can be observed, but valuing household activities and leisure is more difficult. Several options have been proposed in literature:

  • The first approach to valuing household labour is the opportunity cost approach. This theory is based on the assumption that when an individual chooses to undertake unpaid work, such as household activities or leisure, the possibility of spending that time at paid work is precluded. Thus the person foregoes the salary associated with that activity.
  • The second approach is the replacement cost approach, which imputes a wage rate for labour services that could be purchased by the household for household work.

In theory, a household will perform households activities itself if the opportunity or replacement cost of performing those activities is less costly than externalising PHS on the formal or undeclared market. Regarding the formal market, a household will externalise PHS when its (hourly) net wage is higher than the price of externalizing PHS, which is mostly equivalent to the gross wage of the PHS worker (which is higher than his/her net wage because of tax). Regarding the undeclared market, the comparison will be made on the basis of the workers’ net wage, given the absence of taxes. Therefore, the price-setting of PHS is key in determining the quantity of PHS provided both in the undeclared and formal market.

However, this theory can be nuanced by the fact that in practice, a lot of households prefer to perform household activities, especially care activities, themselves. After price, there are also many other parameters that enter into the decision-making process of households (Orseu, 2013), such as:

  • Cultural barriers/lack of social acceptance of externalizing PHS in some countries;
  • Difficulties with accepting an unknown person into the home;
  • Difficulties with assuming the role of employer;
  • Difficulties in accessing the services (administrative burdens, location, etc.).

Furthermore, demand for some PH activities are more price-elastic than for others, depending on their degree of necessity (for example, studies showed that cleaning is less price-elastic than ironing).