What are Household Services in Personal Injury Torts?
Household services, also referred to as “home services”, “household production”, “non-market production”, and “non-market work” represent significant value to most households.
Simply stated, household services are services provided by individuals within their homes which can be quantified, and which have economic value.
In the context of personal injury torts, Household Services constitute a form of compensatory economic damages, i.e. they are damages that are objectively quantifiable in monetary terms, and they are awarded to make an injured party whole.
According to BLS data, the average adult in the United States contributes approximately $14,000 per year to their household in the form of Household Services.
The concept of “non-market production” [household services] is succinctly described by Stanly P. Stepshenson in his 2006 article, Determining the Value of Household Production as a Component of Economic Damages:
“The productive use of time may arise in both labor market and non-market settings. In the labor market the individual exchanges skilled services for a “rent” called compensation. In a non-market setting we can divide time into leisure, and non-market work. Non-market work includes activities you would be willing to pay someone else to do for you, i.e. grocery shopping, lawn mowing, etc. All other non-market activities, such as sleeping, bathing, eating, etc., we refer to as “leisure”. All activities then fall into three categories: market work, non-market work, and leisure.”
The purpose of a Loss of Household Services Assessment, therefore, is to quantify the non-market work contribution of an individual to their household; or more specifically, to quantify the financial/economic loss that will accrue their household as a result of an injury, and its impact on their ability to perform non-market work, namely household services.
The term Household Services is often used interchangeably with the term Household Production, which commonly accounts for the following seven household activities:
- Inside Housework
- Food Cooking & Clean-up
- Pets, Home & Vehicles
- Household Management
- Obtaining Services
- Travel for Household Activity
When most valuation professionals refer to “household services” they are referring to the types of activities that fall withing the scope of Household Production.
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How is Loss of Household Services Measured?
There are two primary methodologies employed to measure loss of household services, i.e. the opportunity cost method, and the replacement cost method, the later of which is by far the most regularly and reliably employed.
Loss of Household Services Assessments commonly account for a specific individual’s personal and household characteristics, which may include: marital status, age, gender, the existence of pre-injury disability, pre-injury employment status, presence of minor children in the household, location, etc.
The Dollar Value of a Day, published by Expectancy Data, is arguably the most commonly employed, and most often cited data source pertaining to household services valuation.
According to Expectancy Data, The Dollar Value of a Day “calculates a market estimate of time value attained with time use, or the cost needed to support or replace time use. Relying on [nearly two decades of] time-diary data from the U.S. Department of Labor’s Bureau of Labor Statistics’ (BLS’s) American Time Use Survey (ATUS), and a wage survey produced by the BLS, Expectancy Data calculates the value created in a day as measured by the price of hiring persons whose marketplace work relates to the time use of people during the course of a day. Multiplying time use hours in an activity by a relevant hourly market price of hiring workers within that activity creates a replacement value, or a cost to produce or supplement the use of time.”
Determining replacement costs in the manner employed by Expectancy Data effects a Labor Value Approach, as described by Cushing and Rosenbaum (2012). The Labor Value Approach values time spent on household services. It begins by measuring an individual’s time spent in a variety of household service activities. The hours in each activity are then valued at the market wage rate for someone employed in a firm producing that activity.
Measuring Present Value Loss of Household Services using the Replacement Cost Method, Labor Value Approach In general, the basic methodology employed to quantify loss household services using the Replacement Cost Method, Labor Value Approach consists of 6 sequential steps:
- Collecting personal information about a subject and his/her personal and household characteristics to facilitate use of relevant group classifications.
- Using individuals personal and household characteristics to map his/her relevant group classifications throughout the duration of the analysis’ time series.
- Using the individual’s relevant group classification to determine loss for each household services subcategory, i.e. inside housework, food cooking and clean-up, etc.
- Applying information pertaining to the individual’s pre-injury and post-injury capacity to perform household services to determine a nominal per annum loss of household services.
- Applying wage adjustment factors to adjust the nominal value an individual’s loss of household services for applicable geographic wage variation.
- Quantify the time value of money and its effect on the nominal value of an individual’s loss of household services to determine a present value loss of household services.