Quality or Equity? Experimental Evidence on Preferences and Willingness-to-Pay for Domestic Services

The Zoom link for participation can be requested at colloquia-a [at] mzes.uni-mannheim.de.

Abstract:

Natascha Nisic, Friederike Molitor, Miriam Trübner

In light of demographic changes, increasing female employment rates and higher standards regarding the provision of care and domestic work, the need for qualified domestic workers has steadily increased. Actual demand by households, however, still lacks behind. How then can domestic services be organized in a way that facilitates households’ outsourcing decisions and increases demand to match households’ objective needs?
Economic and sociological theories help understand and theorise the decision to outsource domestic chores to the market. From an economic point of view, transaction cost theory (TCT) (Coase 1937; Williamson 1981) views households’ outsourcing decisions as make-or-buy decisions (Nisic 2018; de Ruijter et al. 2003). In addition to households’ financial capacities, TCT emphasises transaction costs and trust problems that need to be overcome to explain household demand. Trust problems related to domestic outsourcing could be overcome by reducing the uncertainty associated with the quality of the services provided and with a domestic worker’s “productivity” in the household.
Furthermore, subsidised service vouchers could help households to legally outsource their domestic chores to the market by lifting budget constraints. The effect of such vouchers might vary across social status groups. France or Belgium, for instance, have introduced subsidised service vouchers that households can use to legally hire domestic workers. Subsidised vouchers in Germany could increase in-home employment by providing affordable and legal household services. Will the quality of services and professionalisation help overcome trust problems? Can vouchers help increase willingness-to-pay for cleaning services overall? Does the effect of vouchers on willingness-to-pay differ by social status?
In order to answer these questions, an online factorial survey experiment was conducted with more than 500 respondents in April 2020 in Germany. We deployed a split-half factorial survey design and respondents were asked to evaluate fictitious cleaners’ characteristics in terms of hiring preferences and willingness-to-pay (WTP). With the introduction of a vignette split, respondents evaluated four vignettes under the assumption of state-subsidised service vouchers worth EUR 10 per hour and another four vignettes under status quo assumptions (i.e., no vouchers present).
Findings from multilevel fixed-effects regression suggest that cleaners’ characteristics are important predictors of hiring preferences and WTP, largely confirming our hypotheses derived from transaction cost theory. The net effect of subsidised vouchers leads to a substantial increase in respondents’ willingness to pay, translating into an extra EUR 3.70 for each hour worked. While WTP increases with the introduction of vouchers overall, the effect on WTP is strongest for the lowest status groups so that pay levels between the groups converge when vouchers are present. This is surprising given that the lowest status groups face the highest budget constraints. This finding hints at similar ideas about the monetary value of domestic services in different social groups.