The Elasticity of Substitution Between Time and Market Goods: Evidence from the Great Recession

This paper examines household consumption smoothing via variation in time spent shopping over the business cycle. Using scanner data on grocery purchases, we document how households lower the prices that they pay during downturns by increasing their coupon usage, sale purchasing, buying larger sizes and generic products. We show that this behavior is consistent with a significant decline in households' cost of time in recessions, which is comparable to the decline in cost of time over an individual's life-cycle. Using our estimated cost of time and data from time-use diaries, we estimate a high elasticity of substitution between time and goods in home production. This implies that households are able to smooth a sizable fraction of consumption, relative to market expenditures, by varying their intra-temporal allocation of time during recessions.